"The Nifty IT index has been forming higher highs and higher lows, keeping the overall tone positive. Crucial level to observe is 37,000. A breakthrough above this level can take prices higher towards the 39,000 levels," Ashish Kyal, CMT, founder and CEO of Waves Strategy Advisors, says in an interview to Moneycontrol.
Overall tone for IT will remain bullish for months, he believes. And one can use dips to buy stocks from this sector, he advised.
Kyal, with more than two decades of experience in capital markets, suggested five budget picks, including AIA Engineering, Fertilisers and Chemicals Travancore (FACT), and Strides Pharma. Excerpts from an interview with Moneycontrol:
Do you think the rally is done in IRFC and Rail Vikas Nigam which were the top gainers in the current month?
Both IRFC and RVNL has shown near-vertical rise but reversed sharply on January 23. These stocks are still overbought and further profit-booking is possible in these stocks after the Union Budget.
Prices are already discounting positive outcome from the Budget session and can show dramatic reversals. So, one should now be cautious on these stocks as long as lifetime high levels remain protected.
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Are the charts telling you that the selling pressure is done in Zee Entertainment Enterprises and Polycab India?
For ZEEL, after recent decision to call off the planned merger with Sony, Zee Entertainment Enterprises (ZEEL) experienced selling pressure and closed the last week with loss of 29.47 percent. The downtrend is evident on weekly chart. The formation of strong bearish candle and closing below its previous crucial support level of 175 is confirming the bearish bias.
On the daily chart, after significant sell-off on Tuesday price is trading within the range since past two trading sessions which is Rs 171–157 levels. RSI (relative strength index) is trading near the 23 level, which is indicating that prices are in the oversold area, so a short-term pullback is possible but use that as an opportunity to sell.
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In short, ZEEL is bearish. A breach below Rs 157 can drag the prices lower towards the Rs 150 level with hurdles near Rs 185 on the upside.
For Polycab India, after news of the Income Tax (I-T) department detected "unaccounted cash sales" of about Rs 1,000 crore, the stock tanked 23 percent on January 11 which has changed the overall structure to negative. Formation of a bearish candle suggests that the short-term bias is bearish.
After strong selling pressure price is consolidating in range of Rs 4,550 – 3,800 since the past two weeks. The price broke its previous support of Rs 4,800 which is also confirming the bearish bias. Ichimoku cloud is indicating weakness in price cloud has formed near Rs 4,750 which can act as a potential resistance.
In short, Polycab is sideways to bearish. A breach below Rs 4,050 can drag the prices lower at the Rs 3,650 level, whereas a break above Rs 4,550 can result into a deeper pullback towards Rs 4,700.
Do you expect the Nifty 50 to consolidate with support at the 21,000 mark in the coming weeks? What are the chances of the index hitting 20,500 -20,000 levels?
The Nifty has been forming lower highs and lower lows after touching a lifetime high levels near 22,124 on the upside. This was also near the target we have mentioned in earlier interviews. After forming the high, there was a sharp reversal on the downside.
Over the past few days, we can see rangebound movement. On the downside, a breach below 21,210 might open the downside possibilities to 20,800, followed by 20,500 levels. However, on the upside, the major hurdle is near 21,720 followed by 21,840 levels. A move above this will suggest upside reversal.
For now, the index is trading at crucial juncture before the Budget. Prices are failing to show momentum on either side. After a strong run-up until January 15, short-term correction is a healthy sign for the overall long-term positive market trend. In a nutshell, the 21,210 support will be a crucial level to be watched over the short term.
Do you think the 44,000 is expected to be crucial support for the Bank Nifty for coming weeks?
Bank Nifty has been major contributor to the downside. It has been leading the fall and the Bank Nifty showed one of the steepest declines from January 16, 2024. Over the near term, 44,300 remains an important support for this index and if this is breached, we can expect the downside momentum to increase for a move to the 43,600 levels.
On the upside, 46,200 is going to be a short-term resistance. A move above this is must for meaningful pullbacks. As long as the same is intact, the banking index can remain under pressure.
Is the Nifty IT creating rounding bottom pattern on the weekly and monthly charts? Does it mean that completion and breakout of the same pattern in coming weeks or months can generate robust returns in following weeks or months?
In December 2023, Nifty IT has shown strong breakout of consolidation pattern. In our past interviews we have mentioned bullish stand when the index was near 32,000 levels and since then prices have rallied by nearly 15 percent to close last week at 36,500 levels.
The IT index has been forming higher highs and higher lows keeping the overall tone positive.
Crucial level to observe is 37,000. A breakthrough above this level can take prices higher towards the 39,000 levels. Overall tone for IT will remain bullish for months ahead and one can use dips to buy stocks from this sector.
Which are you top 5 budget picks and why?
AIA Engineering
AIA Engineering has recently witnessed a breakout from the range Rs 3,300 – 3,800 levels, with the price managing to close above the range. The stock has broken out from an attractive technical pattern which is ascending triangle pattern. A follow-up action beyond Rs 3,910 level, price can reach towards uncharted territory setting new record highs for target of Rs 4,200.
Fertilisers and Chemicals Travancore (FACT)
After a long consolidation phase, FACT broke the range in previous trading session. The price is trading above the breakout from ascending triangle pattern, signalling a bullish bias. The closing above its previous high and record high closing indicate strength in the stock.
The technical indicator MACD aligns with the breakout, which is confirming the positive outlook. The increasing volume also suggest bullish momentum likely to continue in next few trading session. In short, FACT is bullish for move to Rs 960 as long as Rs 780 remains intact on downside.
Strides Pharma
Since December lows, there has been an impressive 44 percent rally in Strides Pharma, followed by a 16-day consolidation period. Flag and Pole pattern is indicating a potential continuation of the upward trend. A break above Rs 695 can further lift prices towards Rs 760 levels, as long as price holds Rs 640 on the downside.
Gujarat Pipavav Port
Gujarat Pipavav Port is showing good consolidation after a strong run up and can again resume the positive trend. On previous day, the stock showed strong volumes and managed to close above prior high. In this week, we expect a move to Rs 176 levels as long as Rs 154 remains protected on downside.
Indian Bank
The stock has been consolidating since many weeks. The stock is now trading near upper end of the range. Break above Rs 470 will result into strong positive breakout in this stock for a move to Rs 500 level as long as Rs 440 is intact on downside.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.