Outperformance in the banking space can rejuvenate optimism

Post the extended weekend, Nifty continued its positive momentum and created a new milestone above 18,600 during the opening of Tuesday’s session. However, post that some of the recent outperforming high beta counters witnessed a sharp profit booking that dampened the broader markets and the rub-off effect of it dragged Nifty lower throughout the remaining part of the week to eventually end tad around 18,100.

If we see percentage-wise, then not much has changed in Nifty from its previous week close but if we compare the sell-off in broader markets then it certainly does not bode well for the bulls. One interesting thing that happened was the non-participation of the Banking and Financial space in this fall. In fact, their outperformance came as a rescue to avoid Nifty from breaking the key support of 18,000.

Going ahead, all eyes will remain on the performance of the banking space as further outperformance can rejuvenate optimism in the broader markets whereas a failure can trigger a breakdown below 18000 that can trigger a long due price correction. Some of the individual stocks continued to outperform and one can continue with the stock specific long approach however we need to be very selective in the picking during the F&O expiry week.

Stock recommendations:

HDFC Ltd | Buy | Stop loss: Rs 2,780 | Target price: Rs 3,100

During the last week, this heavyweight counter was the outperformer when things looked dampened in the overall broader markets. In fact, the prices have now crossed above the key levels of 2850 that has acted as resistance for more than four times in the last 7 – 8 months. With this the prices have confirmed a bullish ‘Cup n Handle’ breakout on the daily chart. The prices have now entered the uncharted territory however the momentum indicator i.e. RSI is far from its overbought zone indicating a strong potential upside in the near term. We recommend a buy on this counter at current levels for a target of Rs. 3100 in the near term. The stop loss can be fixed at Rs.2780

Sterlite Tech | Buy | Stop loss: Rs 360 | Target price: Rs 277

This stock is well known for its trending moves however post making a swing high in the August month, the stock lacked momentum and has been trapped within a range. Now after almost two months of consolidation, the prices have moved out of a congestion phase confirming a bullish range breakout. This breakout is seen with huge spurt in volumes and bullish candle stick pattern on the daily chart. In addition, prices have closed above the higher range of Bollinger Band indicating strong trending move in the near term post its recent consolidation phase. Momentum oscillator i.e. RSI as well has entered the positive zone supporting the buy call. Looking at the overall scenario, we recommend a buy in this counter at current levels and on dip to Rs. 295 for a target of Rs. 360 in the near term. The stop loss can be placed below Rs. 277.

(The writer is a technical analyst at Angel One Limited; views expressed are personal)