Analyzing India

Week Ahead: Buoyant NIFTY May Face Consolidation at Higher Levels; Expect Outperformance from These Sectors


Much on the expected lines, the Indian equity markets had a strong week. Despite being overbought and a bit overextended on the charts, the stocks put up a resilient show while the NIFTY tested and closed at a fresh lifetime high point. The Indian market was one of the most resilient among its peers; it has gone on to relatively outperform most of the markets. All the five days of the week were trending sessions with very little and short-lived consolidation taking place. The trading range also remained wider on the expected lines; the NIFTY traded in a 621.55-point wide range over the previous week. The headline index finally ended with a net gain of 268.05 points (+1.52%) on a weekly basis.

The coming week is set to be crucial for the NIFTY. The options data suggests that the frontline index may consolidate, given very high accumulation of Call OI between 17800-18000 points. This may prevent NIFTY from any runaway rise; however, a look at BankNIFTY and other sector Indexes like PSU Banks, PSE, etc., shows a great likelihood of these pockets starting to relatively outperform the NIFTY, as well as the broader NIFTY500 index. The volatility also increased; INDIAVIX rose by 11.09% to 16.92 on a weekly basis. The markets, i.e. front line index like NIFTY, may come in under consolidation; the select pockets in the markets still have some more steam left in them.

The coming week will see the levels of 17900 and 18030 playing out as resistance points. The supports come in at 17760 and 17600 levels. Contrary to what was expected over the previous weeks, the trading range may get narrower this time if NIFTY heads towards consolidation.

The weekly RSI is at 80.88; it has made a fresh 14-period high, which is bullish. It remains in the overbought zone; however, it also remains neutral and does not show any divergence against the price. A strong white candle emerged; this reflects a strong directional consensus of the market participants on the upside.

All and all, the markets continue to remain overextended on both the short-term as well as the long-term charts. However, the internal strength of the markets remains intact as of now; no signs have emerged that point towards any major weakness over the coming days. Only thing that is likely is the NIFTY undergoing a defined broad consolidation, which may not only see NIFTY moving in a defined range, but some increased volatility as well. In the given technical setup, any fresh sustainable up move shall occur only if the NIFTY moves past 17940 levels convincingly. Until this happens, we are in for some range-bound consolidation.

However, during such times, we will find other sectors staging a resilient performance. These are likely to be those sectors which have been either under consolidation or those that are seeing improved relative strength against the broader markets. We recommend avoiding shorts unless a definite sign of any weakness emerges. On the other hand, while staying highly selective, a cautious approach with vigilant protection of profits is advised for the day.

Sector Analysis for the Coming Week

In our look at Relative Rotation Graphs®, we compared various sectors against CNX500 (NIFTY 500 Index), which represents over 95% of the free float market cap of all the stocks listed.

The analysis of Relative Rotation Graphs (RRG) shows that the Small Cap index, which resides inside the leading quadrant, is slowly paring its relative momentum. The Realty and the IT indexes are placed inside the leading quadrant and are set to continue to relatively outperform the broader markets.

The NIFTY FMCG, Consumption, Financial Services and Infrastructure Indexes are inside the improving quadrant; they are also seen rotating in northeast direction and appears to be moving towards the leading quadrant. These groups are also set to put up a resilient show compared to the broader markets. The BankNIFTY index has rolled inside the improving quadrant, which hints at a likely end to its relative underperformance against the broader NIFTY500 index.

The Metals, MIDCAP 100 and the Commodities index remain in the weakening quadrant.

The Pharma is the only index seen languishing inside the lagging quadrant. The other indexes, like Energy, Media, Auto, PSU Bank and the PSE indexes, are also inside the lagging quadrant. However, they are seen improving on their relative momentum against the broader markets.

Important Note: RRG™ charts show the relative strength and momentum for a group of stocks. In the above Chart, they show relative performance against NIFTY500 Index (Broader Markets) and should not be used directly as buy or sell signals.  

Milan Vaishnav, CMT, MSTA

Consulting Technical Analyst |

Milan Vaishnav
About the author: , CMT, MSTA is a qualified Independent Technical Research Analyst at his Research Firm, Gemstone Equity Research & Advisory Services in Vadodara, India. As a Consulting Technical Research Analyst and with his experience in the Indian Capital Markets of over 15 years, he has been delivering premium India-focused Independent Technical Research to the Clients. He presently contributes on a daily basis to ET Markets and The Economic Times of India. He also authors one of the India's most accurate "Daily / Weekly Market Outlook" -- A Daily / Weekly Newsletter,  currently in its 15th year of publication. Milan's primary responsibilities include consulting in Portfolio/Funds Management and Advisory Services. His work also involves advising these Clients with dynamic Investment and Trading Strategies across multiple asset-classes while keeping their activities aligned with the given mandate. Learn More
Subscribe to Analyzing India to be notified whenever a new post is added to this blog!
comments powered by Disqus