D-Street eyes RBI policy in August, midcap stocks will continue to hog limelight: Reliance Securities

Nifty50 closed at an eight-day low of 11,073. On the downside, the band of short and long-term averages placed at 10,920-10,860 will act as support while on the higher side, multiple resistances at 11,400-11,500 could cap the upside, Rajeev Srivastava, Chief Business Officer at Reliance Securities, said in an interview with Moneycontrol’s Kshitij Anand.

edited excerpts:

Q) It was a volatile week for Indian markets. Nifty50 failed to hold on to 11,300 levels. What led to the selloff on D-Street?

A) Nifty50 has filled the gap levels in the range of 11275-11,400 levels left in the first week of March and witnessed minor pullback from the high point with derivatives expiry rollover movement and profit-booking in the index.

The top key index heavyweights like HDFC Bank, Reliance Industries, and HDFC Ltd are seeing some profit-booking from higher levels keeping the index capped.

Q) Which are the important levels that to track in the coming week? What should be the strategy?

A) Nifty50 closed at an eight-day low of 11,073. On the downside, the band of short and long-term averages placed at 10,920-10,860 will act as support while on the higher side, multiple resistances at 11,400-11,500 could cap the upside.

The breakdown below the 200-days average is placed at 10,860 that could trigger a sharp profit-booking in the index.

Q) Based on the July expiry, where do you see Nifty heading in the August series? Do you think we could make a dash towards 11,500 or the index correct towards 10,500 levels?

A) We expect some consolidation at current levels with time-wise correction.

Bank Nifty is a laggard and witnessed a sharp reversal from its double top of 23,150 levels it tested in the month of July 2020.

On the monthly charts, it has closed in a Doji candle and the credit policy in the next week would be important to watch for the next leg of move from current levels.

Q) More than 100 stocks in BSE 500 index rallied 10-50 percent despite a negative closing seen in the benchmark indices in July. In the smallcap index, the number is close to 160 which rose 10-100 percent in the same period. It looks like select small & midcap stocks are attracting buyers’ attention.
A) The Q1 FY21 results are in line with expectations and we have not witnessed any major negative price reaction post the numbers. Midcap companies could continue to remain in focus as the majority of the largecap companies have declared their numbers.

Around 380 companies from BSE500 have declared their first-quarter numbers with a revenue decline of 15 percent and EBITDA (ex-BFSI) has declined by 33 percent while margin was down by 300 bps to 15.4 percent. Overall, PAT has declined by 27 percent year-on-year.

We have witnessed a sharp up move in midcaps and small caps in the latter half of July post the breakout of Nifty from its 200-day average. Being inherent high beta the price performance is very high from the lower range in midcaps and small caps.

Q) Sectorally, IT, Energy, and Healthcare stocks were the top sectors in July? A lot of stocks in the IT space hit a fresh 52-week high. What is leading the rally in these sectors?

A) We have been maintaining a positive bias in both the sectors as they are global plays. Pharma has been the leader of the current up move since the start of the rally from April, after a huge underperformance over many years.

Regular drug approvals from US FDA improved pricing in international markets, and weaker currency led benefits have accrued for the sector.

IT sector has picked up in the current month with one of the largest gains of 22.4 percent post strong results, better management commentary from the companies and a lot of large order wins from global companies.

Q) What are your top 3-5 trading ideas for the next 3-4 weeks?
A) Here are 3 trading ideas which can give 14-18 percent return in the next 3-4 weeks:

ICICI Bank: Buy | LTP: Rs 347 | Target: Rs 400 | Stop Loss: Rs 320 | Upside: 15%
ICICI Bank has closed near to its 200-week average support and we have witnessed a bounce from these levels in the past.

The recent correction post results is a good entry point to accumulate as the risk-reward is in favour with a stop loss of Rs 320 levels on the downside being its 55-month average.

The current up move will give a move to test its 100-week average placed near Rs 400 levels over the next few months.

HDFC AMC: Buy | LTP: Rs 2,418 | Target: Rs 2,865 | Stop Loss: Rs 2,230 | Upside: 18%
The stock has closed near to its long term support zone and has witnessed positive pullbacks from current levels on various counts.

RSI has also turned positive on weekly charts indicates limited weakness in the stock and could give an upward breakout.

This could bring the stock to test the long-term moving average.

Voltas: Buy | LTP: Rs 598 | Target: Rs 685 | Stop Loss: Rs 535 | Upside: 14%
The stock formed a double bottom at sub Rs 530 levels with strong volumes and has good support being the 50-day average placed at Rs 525 levels

The stock has completed his price and time-wise consolidation after a sharp up move, now we expect a fresh move as we expect to cross the 200-day average.

Its Relative Strength Index has crossed upwards from its lower band of averages and we expect the stock to outperform from current levels.

Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.

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