Nifty fails to sustain momentum, however no prospects of collapse; banking stocks to outperform

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Nifty PSU Bank Index saw good traction with all of the index constituents gaining close to 5% on an average. Major gains were seen in SBI, Bankbaroda, Canbk, PNB and Unionbank which contributes around 80% to Nifty PSU Bank index. 77% of the banking stocks in F&O segment have seen short covering this week. Nifty Bank was driven by gains in ICICIBank, SBIN and Kotakbank which together forms around 44% of Nifty Bank Index. These three stocks are either in or close to overbought zone. However this is characteristic of a bull market, and with several bank results being announced in these few days, this space is likely to be buzzing, and Nifty Bank is likely to best Nifty. But, friday ended up with a doji, which is not a signal that would have liked to have towards bullish continuation. Yet, that this came in the face of a substantial correction in Nifty, needs to be seen as a positive signal. This encourages us to look for a 47600 move, but will be prepared to come off the positive trajectory, should Bank Nifty fail to close above 46130.

But, more importantly, all eyes would be on banks whether they would provide the muscle for Nifty to fight the impact of falls in IT stocks. For Nifty, our favoured end point for the last week’s move was 19850-950, and though there was a brief penetration above the upper range, momentum failed to sustain. However Friday’s sharp turn lower has eased the prospects of a collapse especially with several micro supports close by, ready to step in. This encourages us to look for upsides early next week, aiming for 20,160, with expectations of banking stocks to throw in their weight, even if IT play spoilsport. However, inability to float above 19680, would negate the upside views, exposing 19460. Sensex too had embarked on a downside trajectory, but we expect a revival should we see support from 66400.

First published in Financial Express

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