By Rajesh Palviya
Markets are keeping a very close watch on the ongoing health crisis w.r.t second wave of covid across all the states in the country. One of the biggest concerns for the market is the increasing state wise lockdowns, however, compared to last year, markets have been more resilient mainly due to fastening of vaccination drives across the country & the government’s impetus on revamping the medical infrastructure and coping up with ongoing challenges at war footing.
Nifty 50 index commenced the week on a positive note and gained momentum in the initial half, however, Friday’s losses erased earlier gained to close at 14,631 gaining 1.94% on a weekly basis. For the past three months, index has been hovering within the “Down-Sloping Channel” ranging 15000-14200 levels representing sideways to negative bias. On the daily chart the index has formed a bearish candle with long upper shadow indicating selling pressure as well as resistance at higher levels. The index continues to move in a Lower Top and Lower Bottom formation on the hourly chart indicating negative bias.
The chart pattern suggests that if Nifty crosses and sustains above 14,700 level it would witness buying which would lead the index towards 14,900-15,000 levels. However if the index breaks below 14,500 level it would witness selling which would take the index towards 14,400-14,250. Nifty is approaching its 20-day MA and a bounce from the same may show some buying interest. Nifty continues to remain in an uptrend in the medium and long term, so buying on dips continues to be our preferred strategy. For the week, we expect the index to trade in the range of 14800-14150 levels with mixed bias.
The daily and weekly strength indicator RSI continue to remain weak and sustaining below its reference line indicating negative bias ahead.
Nifty derivative outlook
Nifty rollover in April series stood at 66.28% compared to 81.67% significantly down by almost 20%, while in absolute terms there was a increase of 4.03Lac shares( from 98.34 lac to 102.38 Lac) in open interest with an increase in price of 4% indicating a long build up. India VIX indicator of market volatility is trading near its monthly high indicates that even though Nifty has rallied in the last few session but apprehension & caution at higher levels is not ruled out. At the start of May series the sentiment indicator PC Ratio is trading at 1.07 levels indicates positive bias however it will be interesting to watch how it further pans out. The highest OI on the CALL side at weekly 6th May expiry is at 15,000 & 15,500 and on the PUT side it’s at 14,500 followed by 14,200 & 14,000.Nifty will face Strong resistance at 15,000 levels as there has been Call writing of 14.72Lac shares at the said level, while important support will be seen at 14,200 & 14,000 levels as both the Put strike have seen writing of 4.9 & 9.9 Lac shares in OI respectively.
Bank Nifty opened the week on a positive note and gained upside momentum in the initial half however profit booking from 34300 levels erased some of the earlier gains which led the index to close at 32781 with gain of 3.16%. The weekly price action has formed a small bullish candle carrying long upper shadow indicating profit booking at higher levels. On the daily chart the index has formed a bearish candle with long upper shadow indicating selling pressure as well as resistance at higher levels. The index continues to move in a Lower Top and Lower Bottom formation on the hourly chart indicating negative bias The chart pattern suggests that if Banknifty crosses and sustains above 32800 level it would witness buying which would lead the index towards 33200-33600 levels. Important Supports for the day is around 32600 However if index sustains below 32600 then it may witness profit booking which would take the index towards 32300-32000 levels. Banknifty is trading above its 20 day SMA which indicates positive bias in the short term. Banknifty continues to remain in an uptrend in the medium and long term, so buying on dips continues to be our preferred strategy. The daily strength indicator RSI has retraced back to the 50 mark indicating easing of momentum.
Bank Nifty derivative outlook
Bank Nifty has also seen a cut in rollover from 88.18% in March expiry to 64.60% in April expiry with an unwinding of 15.56Lac shares (from 29.54Lac to 13.97Lac) in OI & price gain of 2.15% indicated Short covering. The high OI on the CALL side at weekly 6th May expiry is at 33,500 & 34,000 and on the PUT side it’s at 32,000 followed by 31,500 & 31,000.BankNifty will face Strong resistance at 34,000 levels as there has been Call writing of 3.84Lac shares at the said level, while important support will be seen at 32,000 & 31,000 levels as both the Put strike have seen writing of 1.27 & 1.13Lac shares in OI respectively.
Sectors, stocks to watch
We expect Pharma, Healthcare, IT, Metal, Chemical and Insurance sectors to do well in the near term. One can focus on stocks like Sun Pharmaceutical Industries, Glenmark Pharmaceuticals, Deepak Nitrite, Aarti Industries, JSW Steel, ICICI Prudential Life Insurance Company, TCS, Wipro, for a near-term bullish trend. Midcap space also looks attractive and we expect stocks like Carborundum Universal , JK Tyres, Greave Cotton, Usha Martin , Laxmi Organic Industries, Gujarat Narmada Valley Fertilisers Chemicals (GNFC) likely to do well in the near term.
(Rajesh Palviya is the Deputy Vice President – Research (Head Technical & Derivatives) at Axis Securities Limited. The views expressed are the author’s own. Please consult your financial advisor before investing.)