Podcast | Nifty to consolidate in 10,400-10,700 range; top 3 stocks that could return up to 21%

Dharmesh Shah

The market formed a bull candle on the charts last week, with the higher-high-higher-low pattern showing, as the Nifty gained for the fourth consecutive week.

In the process, the index tested our earmarked target of 10,630, and is seen consolidating to cool off the overbought condition of the short-term oscillator, owing to the 685 point rally over the last four weeks from a low of 9,952 in March.

Since the beginning of 2017, the index has exhibited a tendency to consolidate or correct after five weeks of rallying. In the current context, with four weeks of rally behind us, we expect profit booking to emerge around 10,630 and the index to enter a consolidation phase after that.

•  38.2 percent retracement of recent rally (9,952 -10,594), is at 10,350


•  Last week’s low is placed at 10,396

Structurally, the key point to highlight in the current rally is that it is the largest (685 points) since January 2018's peak, as compared to the two pullbacks before that (362 and 337 points), indicating a structural improvement in the market.

The strong performance across sectors reflects renewed investor confidence. Thus, we expect the Nifty to consolidate in the broader range of 10,400-10,700 and form a base that would pave the way for the next leg of the rally.

Here is a list of top three stocks that could return up to 21 percent in 6 months:

Emami Ltd.: BUY| CMP Rs 1,122| Target Rs 1,360| Stop Loss Rs 1,012| Return 21 percent| Time Frame 6 months

The share price of Emami has seen a strong three-fold rally in 2014-15, rallying from June 2014 lows Rs 445 to the lifetime high of 1365 in August 2015. Since then the stock has been trading in a secondary phase of consolidation for nearly past three years.

Meanwhile, the stock rebounded from upward slanting trend line (currently placed around 1000) on multiple occasions. The stock during last two week’s trade has seen the decent up move, resulting in higher high-low on the monthly chart after a three-month hiatus.

We believe the stock is set to resume its primary uptrend and therefore, provides a good buying opportunity for medium term investors.

Time-wise, the multi-fold rally in 2014-15 occurred in 15 months whereas the stock has already spent over 31 months in the current corrective phase while sustaining above 50 percent retracement level of the 2014-15 rally placed around the Rs 915 regions.

The limited price wise correction and extended timewise consolidation is the sign of a healthy corrective phase within an established uptrend.

Another important observation remains that the stock has maintained higher lows during the three-year consolidation phase, a sign of a robust price structure

We believe, the stock is attractively poised after a healthy price wise and time wise correction, and should move higher towards Rs 1,360 being the identical swing highs of 2015 and 2017-18

Royal Orchid Hotels: BUY| CMP Rs 220| Target Rs 259| Stop Loss Rs 205| Return 17 percent| Time Frame 1 month

The share price of Royal Orchid Hotels has recently registered a bullish flag breakout with the strong volume of almost 10 times the 50 weeks average volume of 6 lakh share per week thus offering a fresh entry opportunity to ride the next up move in the stock.

The stock has recently rebounded from the major support area of Rs 170 being the confluence of:

* The 50 percent retracement of previous major up move from Rs 100-229

Among oscillators, MACD indicator continued its northbound journey and is seen diverging from its signal line indicating strong momentum.

We expect the stock to maintain positive bias and head towards Rs 259 levels being the 138.2 percent retracement of the previous decline (Rs 229 -157)

Majesco: BUY| CMP Rs 561| Target Rs 632| Stop Loss Rs 522| Return 13 percent| Time Frame 1 months

The share price of Majesco is in a strong uptrend and has recently rebounded taking support at the 200 DMA and is seen forming a higher peak and higher trough in the daily chart indicating positive bias in the stock.

Over the last six weeks, the price action has been captured in a well defined upward sloping channel formation, and has recently registered a breakout above the same indicating strength in the current up move and continuance of bull trend.

While intermediate support remains at Rs 522 levels being the recent breakout area and the high of March 2018, which is likely to reverse its role and act as support in the short term.

Among oscillators, MACD indicator continued its northbound journey after witnessing bullish crossover above zero line, indicating an acceleration of upward momentum.

We believe the stock is likely to head higher in the near-term towards Rs 632 as it is the confluence of the 123.6 percent external retracement of the last leg of decline Rs 604-441and the measuring implication of the rising channel breakout placed around Rs 635 levels.