Nifty outlook and stock pick by Angel Broking: Buy Larsen & Toubro

Stock calls and Outlook on Nifty by Mr. Sameet Chavan, Chief Analyst- Technical & Derivatives, Angel Broking Ltd.

Profit booking triggers post RBI monetary policy

The market has seen stupendous run over the past couple of months without any major correction. Last week, we finally saw some pause in this ongoing optimism. The first half can be considered as a part of consolidation wherein some encouraging signs were seen on Wednesday as the hopes were built for yet another rate cut by the Reserve Bank of India (RBI). However, on Thursday, the traders’ fraternity looked disappointed after the RBI maintaining its ‘status quo’ on its repo rate. This resulted into a decent decline on the following day as well to register the weakest week in the last two months. 

Clearly, last week’s tail end correction was a bit unexpected. But since the outcome from the policy was not on expected lines, such reaction was evident. The index is now standing at a crucial juncture and the trend for the forthcoming week would be decided by the price action in first couple of days. For the Nifty, the sacrosanct support is placed in the zone of 11,883 – 11,850. If Nifty slides below these level, we may see extension of the profit booking towards 11,750 – 11,700. So, by no means, this is a trend reversal; rather we would construe this as a healthy correction before resuming the uptrend. On the other side, if the Nifty manages to hold the support zone and starts staying beyond 12,000, it would negate the possibility of extended correction and then the index can continue its upward trajectory towards 12,100 – 12,160. 

Traders are advised not to get carried away by such in-between hiccups, but to rather use such declines to add quality propositions in the portfolio. Since the selling was seen across the board, there is nothing much to comment on sectoral front.  Despite this, we continue to like the ‘Pharma’ and ‘Metal’ spaces, which we believe are likely to provide potential trades. 

Stock Recommendations:
 

Buy Larsen & Toubro

Last Close –  Rs.1,290.80 

Justification – This stock has not participated in the current bull run and has now reached its long-term support zone at 1,280 – 1,290 levels. In the recent past, this zone has acted as a strong demand zone resulting in a strong bounce back; in the month of May, the stock prices rallied from the levels of 1,290 to 1,586 levels; whereas in September, the stock prices rallied from 1,290 to 1,550 levels. With prices reaching the demand zone with the oscillators placed in the oversold zone we are witnessing a bullish reversal pattern on the daily chart known as ‘Stick Sandwich’, which hints at a strong bounce-back in the near term. Looking at the favorable risk-reward ratio, traders are advised to go long for a target of Rs 1,350 over the next few days. The stop loss should be fixed at Rs.1,260.

Disclaimer: Views expressed are the author's own. He may have positions in one or all of the above mentioned stocks.