Market Outlook: Nifty, Bank Nifty on divergent path; 2 stocks to short

Sameet Chavan of Angel Broking recommends shorting Titan and UBL as the counters look weak on the charts

Nifty Outlook

Banking continues to impress; but some distortion in midcap index

The week started with a decent bump up which was then followed by yet another gap-up on Tuesday to reach new milestone of 18,600. However, the high-beta midcap counters (recent movers) started correcting fiercely, which dampened the overall sentiment in the market.

The Nifty had a rub-off effect of this and in the process; it came off slightly in the following couple of sessions as well. Thursday morning, the global markets were a bit stable and as a result, our markets opened with a decent upside gap, exceeded the SGX Nifty by a fair margin. However it was merely a formality as we not only saw Nifty erasing all gains but also went on to slide below 18,100 during the penultimate hour.

Fortunately due to a late recovery in some of the heavyweights, Nifty managed to recover fair bit of ground to conclude the weekly expiry tad below the 18,200-mark. The similar price action was seen on Friday too and with a gradual decline, the Nifty ended around 18,100.

Clearly, the Nifty constituents other than financial stocks are weak and they are leading the correction in the index. However, the banking stocks seem to have different plans. They refused to correct in the first half of the week and in fact, when Nifty was about to knock the crucial support of 18,000 in the latter half, the banking counters came to the rescue.

There was complete gush seen in the banking space on Thursday, which led BANKNIFTY to close above the new millstone of 40,000 with some authority. If banks had not shown this mesmerising move towards the end of the week, the Nifty would have certainly breached the 18,000 mark.

Now two major indices are showing complete divergence, so going forward it would be interesting to see whether the BANKNIFTY’s strength lifts Nifty higher or vice versa. Hence, all eyes will be on the banking space going forward; because a follow-up move from hereon will certainly lift the overall sentiment in the market.

As far as levels are concerned, 18,060 – 18,000 are to be considered as crucial supports; whereas on the flipside, 18,260 – 18,400 would be seen as immediate hurdles. Since the weekly chart of midcap index is showing a bearish formation, which can be termed as ‘Engulfing’ candle;  we advise traders not to create aggressive longs in high-beta counters.

Yes the thematic approach can still be followed, but one needs to be very selective now. Below 18,000 for Nifty, the near term uptrend gets negated and then we are up for some correction which is overdue since a long time.

Stock recommendations:

NSE Scrip Code – TITAN
View          –   Bearish
Last Close       –   Rs 2,412

Justification – This has been one of the rank outperformers over the past couple of decades and in fact, since the March 2020 fiasco, we have seen multi-fold returns in this stock. This week, we finally witnessed some decent correction from its new record highs. Due to this, we could see large bearish candle getting formed on the weekly time frame chart for the first time in last 18-odd months.

Technically, we can term it as a ‘Dark Cloud Cover’ pattern which indicates short term correction at the counter. We recommend selling for a short term target of Rs 2,300. The stop loss can be placed at Rs 2,480.

NSE Scrip Code – UBL
View          –   Bearish
Last Close       –   Rs 1,630.40

Justification – All liquor stocks have done phenomenally well over the past few months and this stock was amongst the first movers last year. This week lots of midcap stocks have undergone a decent price correction and this is clearly one of them. Although the decline was not as brutal as some of the others, the gradual downward activity throughout the week led to a near 5 per cent correction on a weekly basis.

Taking a glance at the daily chart, we can see prices precisely vacillating within the boundaries of an ‘Upward Sloping Channel’ of late and on Friday, we could see prices closing around the lower end. Considering the profit booking mode, we expect the breakdown to happen and hence one can look to short this stock for a near term target of Rs 1,530. The stop loss can be placed at Rs 1,690.

Disclaimer: Sameet Chavan is Chief Analyst- Technical & Derivatives, Angel One. Views expressed are personal.