The Nifty IT index, recently declining from 39,200 to 34,400, appears oversold. With major IT results released, the worst may be over in the short to medium term. Large-cap IT stocks like Infosys, HCL Tech, TCS, and Wipro show rebound signs, potentially driving momentum towards the 36,000 level, with strong support at 34,200.
What is the way ahead in terms of support and resistance level on Nifty and Bank Nifty?Nilesh Jain: Looking at the rebound that we have seen last week after six weeks of consecutive declines, we are likely to witness a follow-up move on the upside on the back of a retracement and also on the back of a short covering move that we are expecting from here. The FIIs long-short ratio has gone into extremely oversold territory. Even on the technical front, the markets were trading in oversold territory.
So, from here, we are expecting a strong pullback this week. On the lower side, the good part of the Nifty’s today’s move is that it had managed to end above 24,600 and also above its 100-day moving average as well. Looking at the overall setup, it looks like a gradual up move can be expected in the Nifty index towards 24,700, 24,800 on the upside.
Similarly, although Bank Nifty has been a laggard, we have seen some positive momentum in the Bank Nifty as well. 55,000 is acting as a very strong support and throughout this week, Bank Nifty has defended the 55,000 levels and that is a positive sign. We are expecting a move towards 55,600 and 56,000 on the upside. A better approach should be to focus on sectors and stocks. On the index front, yes, long positions can be initiated but buy dips should be the strategy.
Markets did manage to sustain those 24,600 levels, but what are the trading ideas for the next sessions? Which sectors should one eye and do you have any scrips in your mind?
Nilesh Jain: We are watching out for OMC space and in crude-related stocks, we are expecting a positive move to continue. Since we have seen a meaningful correction in Brent crude, it will be supportive for the paint stock as well. So, within the paint space Asian Paints is one of the beaten down stocks, recently we have seen a good momentum coming back in this particular counter. So, structure-wise, a long consolidation breakout. I would say, the stock has given a breakout from its past 10-11 month consolidation, looks strong for further momentum to continue on the upside and we are expecting a move towards 2600 to 2620 on the upside. So, 2480 will be the stop loss for this particular counter, Asian Paints is a buy from a short to medium-term perspective.
Apart from that, we have seen a strong move in Manappuram Finance and Muthoot Finance. Specifically post numbers, Muthoot Finance has given a big spurt and similarly setup for the Manappuram Finance is also looking strong. We are expecting a follow-up move to continue. Today we have already seen a strong breakout with a good volume participation. So, Manappuram Finance is a buy with a stop loss below 260 and target would be 274.
What is to be done with the midcap IT plays? There was a time when the IT sector was not performing when we started with the earning season, of course, because IT majors were not giving a good set of results, but last week, it was the midcap IT plays which tried to see a comeback. Should we consider this comeback a promising or we need to wait and watch?
Nilesh Jain: Nifty IT index has been a beaten down sector. We have seen a decline all the way from the levels of 39,200 to 34,500, 34,400. That was the recent low we have seen in this particular index. Now it looks like it has gone into extremely oversold territory. The major results have already been spun out within the IT pack and it seems like the worst is behind for the IT space at least from a short to medium-term perspective.
The risk-reward is looking attractive at present level. I would like to bet on the largecap IT names like Infosys, HCL Tech, TCS, or maybe Wipro as well. These are the stocks that are showing signs of rebound from the lower level. So, we can expect momentum to continue at least from the August series expiry point of view. As far as the index is concerned, 36,000 level is something that we are expecting and 34,200 is acting as a very strong support. Till it does not break below the same we can expect a gradual up to continue.
Within the midcap IT pack, Persistent, LTIM, Coforge are the couple of stocks we have seen a strong momentum today, but towards the closing up, we have seen some bit of profit taking, but the overall setup looks positive from a short-term perspective. We are expecting this pullback to continue.