By Vishal Wagh
Soaring crude prices and strengthening USDINR may become hurdles in further progress for the Indian market. Major indices have closed with a bearish connotation. Nifty and Sensex both lost more than 0.80% last week. On the other side, Nifty small-cap managed to post gains of 2.19%, and Nifty midcap too posted half percent gain.
Nifty pharma posted gains of 3.25%, followed by FMCG and PSU banks with a half percent gain. The Nifty Metals, Private bank, Energy, Financial Services and Service sector indices closed in the red. Whereas, Nifty auto, Consumption, MNC remained flattish.
Nifty weekly closed with a ‘Bearish Cloud cover pattern’. It indicates a chance of profit booking in the coming few weeks. Though the range was small, the downside seems limited till recent lows of 15450 levels. On the higher side resistance is at 15950 levels.
Banknifty too closed with ‘Bearish Cloud Cover Pattern’ but the range is small. So any confirmation will be there post penetration of 33800 levels. On the higher side, 35600-36200 are resistance zone.
India Vix: (12.09)
The Volatility index is getting lower and lower with every passing trading session. It indicates that in the coming few days market may remain sideways to positive and further contraction of volatility can be seen.
The USDINR has conquered the barrier of 74.40, it has made a high of 74.81 just below the weekly supply zone of 74.91-75.62 and closed just above 74.40. So, in short, it has given breakout and tested the breakout levels in throwback. At the same time, resistance will be seen between 74.91-75.62. It shows that the Indian currency may depreciate if levels of 74.91 get broken. There will be a tough fight between sellers and buyers till 75.62 get conquered.
WTI Crude: ($ 75.10)
The crude is showing strong momentum with the higher high higher low formation in place. The difference between shorter-term and longer-term moving averages is getting expanded. On the weekly basis, the supply zone of $ 73-76.50 is getting tested and consistent demand is slowly getting overpowered against the supply. In the case of cutting above $ 76.50 equilibrium may shift towards the higher side and the next target will be a monthly supply zone of $95-$98.
As discussed above the Crude and USDINR are strong and it can be a concern for the Indian equity market in the coming few weeks. As both these asset classes have a direct impact on the economy, specifically inflation.
Considering the above development three stocks which come to our picking are as follow
Aurobindo Pharma (CMP: Rs 994)
The weak domestic currency is normally favored by pharma stocks. Aurobindo pharma has given breakout from a downward sloping channel of 60 points and closed at 994. RSI has moved above 50. The middle line of the Donchain channel has crossed. 20 EMA has just kissed 50 EMA and reversed. All this observation indicates that in the coming days Auropharma will move towards an all-time high of 1067 and once crossed it the sky is the limit. On the downside, the reversal point will be 956. So, one should keep a stop below 956 and hold long in Auropharma.
Wipro (CMP: Rs 538)
Another favored sector is Information Technology when USD is getting stronger. In the IT pack, Wipro is showing profit booking just before quarterly results within a few days. The major support zone for Wipro is 510-518 which has not been tested so far in the up move. The last rally in Wipro has witnessed from 492 levels to 564 levels, 50% and 61.80% retracement of the rally is 528 and 519 respectively. In profit booking, these areas will be tested and new long can get built up over here. One can start accumulating the stock from 530 to 510 levels for a target of new high 564 once it crosses the first target, then the sky limit on the higher side. On the lower side, one should maintain a stop loss of 504.
Bandhan Bank (CMP: Rs 321)
Rising Inflation always puts pressure on the banking system. Since Feb 2021, the private banks are underperforming Nifty and Banknifty. Bandhan Bank from the private banking space has created a bearish setup. It has penetrated the upward sloping trendline with a close below the middle line of the Donchain Channel. In a recent pullback, the Bandhan bank managed to retrace around 78.40% of the downtrend from the highs on March 21 at 371 to the low of May 278. So, on the higher side 354 will work as resistance, and 278 will be the first target. If broken 278 then the support zone of 251-258 will be checked. One should keep stop above 354 and play safe.
(Vishal Wagh is Head of Research, Bonanza Portfolio. Views expressed are the author’s own.)