Routine profit booking in smallcaps, rally will continue: Sudeep Shah, SBI Securities

Notwithstanding the minor dip seen in the smallcap index last week, technical indicators suggest buying momentum will continue as the selling was just routine profit booking, says Sudeep Shah of SBI Securities..

“Technically, Nifty Midcap and Nifty Smallcap are in a strong uptrend as they are marking the sequence of higher tops and higher bottoms. The uptrend remains intact as long as the sequence of higher tops and higher bottoms is sustained. Also, it is trading above its short and long-term moving averages. The momentum indicators and oscillators are also supporting the overall bullish chart structure,” he says.

Edited excerpts from a chat with Sudeep Shah, Deputy Vice President and Head of Technical & Derivatives Research, SBI Securities:

With lower volumes, Nifty traded range-bound and ended with a small gain last week. Do you think the index can break through the barrier at 19,850 to 20,000 in the November series?
Both the major Indices Nifty & Bank Nifty witnessed consolidation and managed to close with minor gains of 0.3-0.4%. Even Midcap & Small-cap Index followed suit with Midcap Index closing 0.4% positive & Nifty Smallcap Index ending with a minor 0.3% cut.

If we look at this from a larger perspective, in the last 4 weeks, Nifty and Bank Nifty have rebounded 4-5% while small and midcap indices have displayed excellent momentum rising by 8-10%. This means that the overall medium-term trend in the markets is bullish. This has been largely due to the Dollar Index weakening to 103.7 levels along with US 10-year bond yields sliding to 4.40% and Brent crude prices stabilizing around $80 a barrel.

In the week gone by, Nifty traded in a narrow range of 205 points, which was the lowest weekly range since June 2023.

The tepid close to a lacklustre week gone by was mostly on account of uncertainty ahead of the 5 state election results which are due next week as well as due to a lot of liquidity chasing 5 mainboard IPOs.Going ahead, the index may continue to consolidate in the range of 19900-19700 but the individual stocks-specific activity is likely to continue. The penetration with strength on either side would open gates for a trending move. Till it happens, we would suggest market participants, especially traders, play safe and become aggressive only after the markets find direction and momentum.

In case, if the index sustains above 19,900 level, then it is likely to test the level of 20100, followed by 20350 in the short-term. While, on the flip side, any sustainable move below the level of 19700 will lead to further correction up to the level of 19600-19550, where a 20-day EMA is placed.

Talking about option data, significant writing is visible in 19,800-20,000 Calls & 19,800-19,700 Puts implying a near-term trading range of 19,600 to 20,000 for the coming week.

Nifty Bank remained under pressure following RBI tightening. What would be your trading strategy this expiry?
Last week, the banking benchmark index, Bank Nifty, traded in a narrow range of 560 points, which was the lowest weekly range since June 2023. However, on Wednesday, it marked the low of 43230 level and thereafter witnessed a smart recovery of over 500 points. This resulted in the formation of a Bullish hammer-like candlestick pattern on a weekly scale. The long lower shadow of the weekly candle indicates buying interest at lower levels. Most noteworthy, since the last two trading sessions, the Bank Nifty has outperformed the frontline index, i.e. Nifty 50.

Going ahead, the zone of 43,350-43,400 will act as crucial support for the index as the 200-day SMA is placed in that zone. While, on the upside, the zone of 44,000-44,050 will act as an immediate hurdle for the index, which is the gap zone created on November 17. Any sustainable move above the level of 44050 will lead to a sharp upside rally up to the level of 44,400-44,600 level.

On the flip side, if the index slips below 43,350 it will resume its southward journey. In that case, it is likely to test the level of 43,080-43,000 in the short-term.

Talking about option data, significant writing is visible in 43,700-44,000 Calls & 43,500-43,700 Puts implying a near-term trading range of 43,350 to 44,100.

How would you read the momentum in mid and smallcap stocks? Nifty Midcap100 outperformed but the smallcap index was under selling pressure. Is buying interest fading away or is it just profit booking before the next round begins?
Technically, Nifty Midcap and Nifty Smallcap are in a strong uptrend as they are marking the sequence of higher tops and higher bottoms. The uptrend remains intact as long as the sequence of higher tops and higher bottoms is sustained. Also, it is trading above its short and long-term moving averages. The momentum indicators and oscillators are also supporting the overall bullish chart structure.

Hence, we believe, the buying interest in Mid and Small cap space is likely to continue & the current selling pressure is just routine profit booking move.

For the Midcap 100 Index, 41600-41650 zone is likely to act as an important support while for the Nifty Smallcap 100 Index, 13500 zone will act as a key support.

We feel select quality midcap & smallcap stocks from power, real estate, infra, defence, sugar, insurance PSUs, auto ancillaries as well as retail facing stocks are likely to do well in the next few weeks.

What are your top trading ideas for the week ahead
Bharat Forge: On the weekly scale, the stock has given confirmation of the Inside Bar pattern, which was formed on the weekend of 17th November. On a weekly scale, it has formed a sizeable bullish candle along with a relatively higher volume. The weekly RSI has given a bullish crossover. Hence, we recommend buying this stock for the upside target of Rs 1170, followed by 1200 in short term. Maintain the stop loss of Rs 1080 on a closing basis.

GMR Airport Infrastructure: On daily scale, it has given breakout of downward sloping trendline. This breakout was supported by robust volume of nearly 3 times of 50 days average volume, strong buying interest by market participants. The momentum indicators and oscillators are supporting the overall bullish chart structure. These technical factors are indicating further upside in stock. Hence, we recommend buying this stock with a stop loss of Rs 58 for the target of Rs 64, followed by Rs 68 in short-term.

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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)