Sectoral outlook: D-Street Week Ahead: 4 sectors that can shine in directionless market

After two weeks of corrective decline, the Indian equities tried to find a base for themselves, trading in a defined range.

During the course of the week, Nifty50 slipped below the 20-week MA and it has resisted this level during past sessions. While the trading range was lower compared to previous sessions, the market’s attempt to find a temporary base for itself remained evident.

The index formed a higher top and higher bottom pattern but did not take any major directional bias. It ended the week with a net gain of 414.35 points (+ 2.42%).

The monthly derivative expiry and the Union Budget are out of the way now. The Union Budget was one of the most important domestic events that the market faced and digested. The markets had approached the Budget on a much lighter note and therefore did not see any major down moves after that.

The volatility too remained low as the INDIA VIX declined 8.69% to 18.90 on a weekly basis.

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Beginning Monday, any market reaction will be a mature and much-refined reaction to the Budget and related sectors, with the index largely respecting technical levels.

Despite largely sharp corrective moves and Union Budget done and dusted, the Nifty has kept its primary trend intact.

The coming week is likely to see the levels of 17,650 and 17,830 acting as resistance levels. The supports will come in at 17,250 and 17,000 levels. The technical supports and resistance points this week remain broader, making the likely trading range much wider than usual.

The pattern analysis of the weekly chart shows that the Nifty is well above the extended trend line pattern support and remains in a broad, well-defined range. This extended trend line is drawn beginning from 15,430 and joins the subsequent higher tops.

The weekly RSI is 53.79 and neutral; it does not show any divergence against the price. The weekly MACD is bearish and remains below the signal line. Apart from a white body that emerged on tech charts, no other major formations were noticed on the candles.

All in all, the Nifty is unlikely to make a major directional move over the coming week.

On the higher side, it is unlikely to move above 17,800 as per the options data unless there is any tactical shift. On the other hand, it is unlikely to violate the 17,000 levels in the event of any resumption of the corrective move.

Sector-specific outperformance will continue. It is recommended that shorts must be avoided and this consolidation phase should be used to pick the right stocks with strong relative strength. The pockets like banks, financials, oil and gas, infrastructure and auto are likely to put up a resilient show over 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.

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The analysis of Relative Rotation Graphs (RRG) shows possibilities of strong relative outperformance from Autos, Energy, PSE Index, and the PSU Bank Index as they are placed in the leading quadrant. The commodities index, which is inside the improving quadrant at present is also seen firmly heading towards the leading quadrant.

Nifty Infrastructure, Media, and the Realty Index languish inside the weakening quadrant along with the IT Index. Some individual performances from these groups may be seen, but broadly they appear giving up on their relative momentum against the broader Nifty 500 Index.

Nifty Consumption Index is inside the lagging quadrant. Apart from this, the FMCG and Financial Services groups are also inside the lagging quadrant but they appear to be improving on their relative momentum.

Nifty Bank Index has rolled inside the improving quadrant. This marks a potential end to the relative underperformance of this group. Nifty Pharma and Metal Indices are also inside the improving quadrant.

Important Note: RRGTM 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, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae and is based at Vadodara. He can be reached at
milan.vaishnav@equityresearch.asia

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