NSE Nifty 50 fell significantly from its all-time high of 15,431 in March. However, the index has not broken its 50-day EMA, which has served as strong support since May of last year. Domestic brokerage firm ICICI Direct believes the healthy retracement of February highs now offers investors a new entry point, expecting the index to return to all-time highs in the coming months. “We expect the index to maintain the strong support of 14,400 and gradually retest the lifetime highs of 15,430 in the coming months,” ICICI Direct said in a report.
The index corrected on average 9% at each retracement before rebounding strongly. The recent correction, in ICICI Direct’s opinion, has helped the index cool the overbought condition. The brokerage firm expects domestic markets to mirror developed markets, which are trading near all-time highs, and therefore expects a rebound. However, a decisive close below 14,400 would disrupt the pace and a prolonged correction would unfold, they warned.
Larger, healthy markets
Opportunities are also plentiful in the smallcap and midcap space. The Nifty Midcap 100 corrected 9% from its recent high, similar to past corrections. The index has held above the 10-week EMA since June 2020. “We expect the strong positive correlation with developed market peers to remain intact for the midcap index, with the US index forming a higher base around a new lifetime high, ”said ICICI Direct. Meanwhile, the Nifty Smallcap 100 index is still at 15% of all-time highs. The smallcap index has corrected 8% from recent highs, which now offers a new buying opportunity.
Bank Nifty has corrected from its budget highs, but is expected to remain above the solid support area of 32,600 to 33,000 and see a pullback to 36,500 in the coming month, according to ICICI Direct.
IT, Banking, FMCG to outperform
Among the information technology, banking and consumer products sectors continue to outperform on the charts. IT stocks took a two-month hiatus and are now in the upper quadrant. Bank stocks galloped past the budget, but now, after a firm correction, they are expected to resume their uptrend. Consumer stocks, according to ICICI Direct, were in the “good business” quadrant, but are now outperforming and should continue to do so. As the commodities cycle is the buzzword on Dalal Street, the brokerage firm expects metals and capital goods inventories to consolidate now after outperforming.
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