Market mood shifts in favour of mid-caps stocks

Special to Firstpost

S&P CNX Nifty (5,703.30): The Nifty index was in a consolidation mode during the just concluded week. This is not surprising if viewed in the context of the sharp rally witnessed in the past couple of weeks. While the index is taking a breather, it remains to be seen if there is a price-wise correction or if this would just be a sideways correction.

The index has to move past the upper green line highlighted in the attached daily chart . If not, there would be a strong case for a drift to the immediate support at 5,500-5,550. A fall below 5,640 would be an early clue that the index could drift lower to 5,500.

From a medium-term perspective, it hardly matters if the index falls to 5,500 or not. This would not jeopardise the bullish undertone. The positive view and the chances of a rally to 6,000 would be under threat only if the index falls below 5,400.

Any downward correction would, therefore, present an opportunity to buy fundamentally sound stocks from rate-sensitive sectors such as banking, realty and infrastructure.

[caption id=“attachment_473203” align=“alignleft” width=“380”] From a medium-term perspective, it hardly matters if the index falls to 5,500 or not. This would not jeopardise the bullish undertone. Reuters[/caption]

There has also been a marked shift in preference in favour of mid-cap stocks. Traders and investors may shortlist well-managed companies from the mid- and small-cap sector to generate alpha. Stocks such as Redington, NIIT Technologies, Great Offshore and Zee Entertainment are a few that qualify as quality portfolio candidates.

CNX Bank Index (11,456.80): If at all the Nifty gets into a deeper, price-wise correction, it is most likely the correction would be triggered by a weakness in banking stocks. There are signs of fatigue in stocks such as Axis Bank, State Bank of India and Punjab National Bank.

A fall below 11,250 would trigger a short-term correction to the immediate support at 10,650. The anticipated correction would not, however, affect the medium term bullish view. The index has to fall below 9,800 to indicate a reversal of the long-term bullish trend. Price weakness may be used to build long-term positions in frontline banking stocks.

Redington (India) (Rs 78.35): This stock has been confined to a broad trading range of Rs 64-98 for several months now. The price has recently reversed from the lower end of this trading range and the technical indicators suggest that a rally to the upper end of the range at Rs 98 is likely. ( See chart )

Investors may buy the stock with a stop-loss at Rs 68, for an initial target of Rs 98. A breakout past Rs 98 would have long-term bullish implications and the stock could then rally to Rs 135.

Corporation Bank (Rs 417.60): The stock appears to have bottomed-out from a medium-term perspective. The stage appears set for the next leg of the uptrend. A move to Rs 500 appears likely from a medium-term perspective.

Those willing to play the waiting game may consider long positions in the stock with a stop-loss at Rs 380. A move past Rs 500 could trigger a rally to the long-term target of Rs 650. Long-term investors may also adopt a systematic investment plan (SIP) type of investment approach in this stock to accumulate positions.

(The views and recommendations featured in this column are based on a 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.)