By Anand James
Nifty is now at a record peak, post a three consecutive day rise that erased a single-day drop of over 8% during last week. VIX has almost halved, from the peaks seen on the election results day, suggesting that volatility expectations have significantly eased. However, VIX is still above the levels seen a month before the results, indicating that caution has not been entirely abandoned. Standard deviation studies point to the potential onset of exhaustion next week, which could see a pull-back towards 22600 at least. Alternatively, a direct rise above 23350 would call for 23538 or 24130, but we see limited prospects for the same this week.
Nifty Bank, meanwhile, has more room for upside before recent peaks are visited. But this in a way also suggests that the recovery of last week did not find enough momentum as Nifty did, which is probably pointing towards an impending slowdown. Alternatively, if dips fail to slip beyond 48860, expect the next of upsides to unfold, aiming for 53800.
Risk on or risk off?
The recouping of losses is more reflected on the indices than in the broad market. In fact, while 86% of Nifty 50 stocks are trading above their respective 20-day SMAs, only 53% of the midcap 100 stocks are trading above the same benchmark. Also, while 40% of Nifty 50 stocks are trading near the week’s high, none of the smallcap 250 index is trading near the same. Hence, the record peaks seen on the benchmark indices need not translate fully into a broad-based rally. At least not yet.
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Our sectoral pick
IT and FMCG are usually seen as defensives when the broader market struggles for a reasonable period of time, but it is hard to see them as short-term defensives. But what works in favour of IT is that they have been an underperformer lately which gives them a low base to bounce from. Among IT index stocks, 60% are trading above 50DMA and 70% of the stock are trading near monthly highs which is pointing towards one more push higher in IT stocks in the coming days before profit booking emerges. As far as the CNX FMCG index is concerned, we have seen a weekly Supertrend and MACD break. Only 20 % of stocks are trading near a monthly high and 33% near a weekly high indicating that more room is there on the upside. Meanwhile, 40% of the FMCG index stocks have seen fresh 52-week highs this week underlining the strength in the sector. Expect the Nifty FMCG index to move towards 61500 in the next few weeks.
(Disclaimer: Anand James is Chief Market Strategist at Geojit Financial Services. Views, recommendations, opinions expressed are personal and do not reflect the official position or policy of Financial Express Online. Readers are advised to consult qualified financial advisors before making any investment decisions. Reproducing this content without permission is prohibited.)
