Further Nifty rise hinges on banks, energy; TechM outlook positive

Special to Firstpost

CNX Nifty (6,029.20): After a sharp drop on Tuesday, the market sentiment remained positive in the remaining days of the week. As highlighted in the daily chart of the Nifty, the index on Friday had faltered at a key resistance. A quick breakout past 6,120 would be a sign that the recent recovery process is intact.

On the contrary, a fall below the recent swing low of 5,910 would signal the start of a downward correction in the Nifty. As highlighted in the previous weeks, the banking sector comes across as a weak link.

The recent rally in the Nifty has been powered by the FMCG and IT sectors. While the CNX FMCG index has reached an area of resistance at 19,300-19,350, the CNX IT index appears to have lot of steam left.

More from Investing

MSMEs are breaking the traditional convention. Look who’s funding them Scale-up your startup without an investor! Here’s how

It is imperative to see some traction in the banking sector for the Nifty to pick-up speed and seek higher levels. If not, the energy sector, led by Reliance Industries, has to chip in with the leadership role.

Looking at the technical picture in Reliance and ONGC, there appears to be a strong case for the Nifty to at least remain afloat if not seek higher levels. The short-term target for the Nifty remains at 6,250-6,300. This view would be invalidated on a fall below 5,900.

Bank Index (10,973.90): The bank index continues to be a relative underperformer. Fundamentally, the quarterly earnings scorecard of top private sector banks has not been disappointing. The likes of HDFC Bank, Axis Bank and Kotak Mahindra Bank announced their earnings this week and their performance was in line with or marginally better than expectations.

[caption id=“attachment_971877” align=“alignleft” width=“380”]  Will the Nifty rise? Reuters[/caption]

The outlook for Kotak Mahindra Bank and HDFC Bank appears positive. Both stocks are trading near key support, presenting a low risk buying opportunity. The outlook for the Bank Index, however, does not appear too promising.

The index has to move past the resistance at 11,850 to indicate a reversal of the recent downtrend. The index is now perched right above the key support at 10,800-10,900 range. A fall below the 10,800-level would lend momentum to the recent fall and the index could then slide to the next support at 9,800.

Asian Paints (Rs 5,164.25): After a period of consolidation, the stock has resumed its uptrend since June 25. There is a sharp pick-up this week in the momentum behind the rally, suggesting that the buyers are very active.

Investors may use any weakness to buy the stock with a stop loss at Rs 4,830 and a target of Rs 5,900. A move beyond Rs 5,900 could push the stock to the major resistance at Rs 6,150.

Tech Mahindra (Rs 1,132): The stock has been in a strong uptrend in the past few weeks. The short-term outlook is positive and the stock could test the immediate target at Rs 1,250.

Long positions may be considered at the prevailing levels and on weakness, with a stop loss at Rs 1,040 and an initial target of Rs 1,250. The stock could rally to Rs 1,400 if it clears the resistance at Rs 1,250.

(The views and recommendations featured in this column are based on the technical analysis of historical price action. There is a risk of loss in trading. The author may have positions and trading interest in the instruments featured in the column.)