Nifty likely to head towards 10,600; 3 stocks which could give up to 22% return in 6 months

Dharmesh Shah

ICICI Direct.com Research

The Nifty gapped up above last five session’s narrow trading range to signal resumption of the upward momentum after the brief consolidation near the recent breakout area of 10,170.

The higher base building process above the recent breakout area and the upper band of the last three months consolidation range provided the platform for the continuation of the upward momentum going forward.

We reiterated positive stance and expects the index to head towards the target of 10,600 level over the coming months as it is the measuring implication of the Bullish Double Bottom pattern formed during the last three months consolidation (10,170 to 9,700 = 470 points) added to the breakout point of 10,170.

Therefore, any intermediate cool-offs should be utilised as an incremental buying opportunity. The mega PSU bank capitalisation and infrastructure booster has brought the focus back on the sectoral heavyweight Nifty Bank index which was the most prominent laggard over the last two months.

The banking index which carries a combined weight of nearly 35 percent on the Nifty, resuming its leadership profile will provide the necessary impetus for the index to continue its march towards our target of 10,600 over the coming months

We believe the immediate support base for the index has shifted upwards to 9,900 regions as it is the confluence of following:

>Lower band of the recent consolidation is placed at 9,955
>Rising 50 day EMA is currently placed at 9,970

>61.8 percent retracement of current up move is near 9,900

The broader markets have persistently outperformed the index over the last three months highlighting the underlying positive bias and stock specific action in the market.

The NSE mid cap and small cap indices have scaled to new life highs along with the benchmark highlighting broad-based participation and augurs well for the continuation of current up move going forward.

Here is a list of top three stocks which could give up to 22 percent return in next 6 months:

Sadbhav Engineering: BUY CMP – 316| Target Rs385| Stop Loss Rs275| Return 22% Time Frame 6 months

The stock remains in a well established uptrend and continues to inch northwards in a rising peaks and troughs manner in the weekly chart.

Structurally, the entire up move since February 2016 till date has occurred in a well-defined rising channel which highlights the robust price structure amid persistent demand to own the stock at elevated levels.

The stock has recently seen a sharp rebound from the support area of Rs265-275 being the confluence of the following technical parameters such as:

a. The lower band of the rising channel containing the entire price action since February 2016 as can be seen in the adjacent chart

b. 80% retracement of the preceding major up move from Rs238 to Rs350 placed at Rs270 levels

c. The rising 200 weeks EMA, which has acted as a strong support is placed around | 260 levels

We believe the corrective consolidation phase over the last five months has approached maturity. We expect the stock to resolve higher and test Rs387 levels in the medium term as it is the upper band of rising channel in place since February 2016.

JK Lakshmi Cement: BUY CMP – 429| Target Rs490| Stop Loss Rs380| Return 14% Time Frame 6 months

The stock entered into a secondary corrective phase after hitting a lifetime high of Rs536 in May 2017. The price wise and time wise behaviour during this corrective phase highlights the overall robust price structure.

Price wise the stock attracted strong demand after approaching its key value area of Rs375-380 region. The confluence of 80 percent retracement of the last rising segment (Rs330 to Rs 536) at Rs380 and lower band of rising channel marking price wise equality with last falling segment (500-340=160 points) placed around Rs375 region made this a strong value area for the stock.

Time-wise, the last rising segment (Rs330 to Rs536) occurred in 21 weeks while the stock has so far taken over 24 weeks under corrective phase.

Extended time wise correction and price wise damage limited to 80% retracement of the previous up move highlights the overall robust price structure.

The stock witnessed a base formation around the key value area for three weeks since the start of this month highlighting accumulation by stronger hands ahead of the impending reversal.

The strong up move in the current week has seen the stock resolve higher from the three-week base formation range thereby signalling the conclusion of the secondary corrective phase and implies resumption of the upward momentum.

We expect the stock to resolve higher from here on and head toward Rs500 levels in the coming months as it is the 80% retracement of the May-October 2017 decline which also coincides with the multiple highs formed in June 2017 placed around Rs500 region.

Birla Corporation: BUY CMP – 1017| Target Rs1180| Stop Loss Rs925| Return 16% Time Frame 6 months

The stock remains in a well established uptrend and continues to inch northwards in a rising peaks and troughs manner.

Structurally, the entire up move since May 2016 till date has occurred in a well defined rising channel which highlights a robust up move amid persistent demand to own the stock at elevated levels.

The stock witnessed a major turnaround during June 2017 as it registered a resolute breakout above the long-term trend line resistance joining the highs of 2014 (Rs614) and 2016 (Rs804).

Over the last four months, the stock has been sustaining above the breakout area, signalling inherent strength and overall positive price structure

We expect the stock to continue with its uptrend and head towards Rs1180 over the medium term being the 138.2% extension of the previous up move from Rs729 to Rs973 as projected from the recent trough of Rs844 which also coincides with the upper band of the rising channel in place since May 2016.

Disclaimer: The author is Head Technical, AVP at ICICI Direct.com Research. The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.