Midcap recovery likely from cement, realty, auto — Top 3 bets from Reliance Securities

Reliance Securities

The markets have taken support near the lower range at 10,550 levels and have seen a strong pullback post the credit policy as the MPC committee maintained a neutral stance. Midcaps and small caps have seen also seen good recovery in the latter half of last week. Pharma sector was the highest gainer for the week as Sun Pharma led the up move with some positive news with respect to its Halol plant and other stocks also gained with the broader index.

The Monetary Policy Committee's decision to hike policy rates by 25 bps, however, is not justified by economic forecasts, as the central bank has only marginally revised up its FY19 inflation forecast (to 4.8 percent from 4.65 percent earlier). Besides, it has maintained its GDP growth forecast at 7.4 percent for FY19. This, along with the MPC’s decision to maintain a neutral stance, brings in uncertainty about further hikes.

Nifty has gained by 0.7 percent, while midcap gained by 1.0 percent and small caps declined by 0.5 percent respectively for the week. Among sectors it was a mixed bag with Pharma, Metals, and Energy to gain by 4.8 percent, 2.5 percent and 2.7 percent respectively while Auto and IT gained by 1.5 percent average. Bank Nifty ended flat to negative by 0.9 percent for the week with respect to some profit booking in HDFC Bank from higher levels. India VIX declined by 6.7 percent to close at sub 13 levels.

We continue to remain positive on markets with key supports at 10,550-10580 levels below which the trend will turn negative. Midcaps should continue to see some recovery especially from the cement, realty and auto sector. On the higher side crossover of 10,850 levels would trigger for a swift move of 11,000 levels crossing the last month high. Nifty 10,600 PE has seen consistent addition in the past few days moving the OI to 49 lakh shares while on the higher side 11000 CE has the highest OI of 43 lakh shares.

CMP: Rs 929| RECO: BUY| TARGET: Rs 1,000| STOP LOSS: Rs 8,80

The stock has formed a strong base around its 50% Fibonacci Retracement level of prior up-move (680-1106) and later, despite a high volatility rose to 4-week closing high. RSI reversed from sub-45 level for straight fourth time in this rally, signaling strength in the stock. Bullish cross-over in Stochastic around its oversold zone is indicating limited down side (if any). As per the current weekly set-up, we believe that the stock will soon resume its northward journey and will recover prior damages. Thus long position can be initiated here for the target of Rs1,000 with a stop loss of Rs880.

CMP: 944| RECO: BUY| TARGET: 1060-1100| STOP LOSS: 880

The stock has formed a bullish reversal pattern (i.e. Piercing Line Pattern) around 50% Fibonacci Retracement level of prior up-move (398-1471), signaling near-term turnaround. Reversal in the key technical indicators-RSI and Stochastic from their oversold zone are also coinciding with our view. Though short-term trend is negative in the stock, at least a corrective bounce back cannot be ruled out in the near term. Thus, long position can be initiated here for the target of Rs1,060-1,100 with a stop loss of Rs880.

L&TFH

CMP: 169| RECO: BUY| TARGET: 184-188| STOP LOSS: 159

The stock has taken support around its short-term rising trend line and later rose to one-week closing high. In the past, reversal from the rising trend line has supported 10%-20% rebound in the stock. Break-out in RSI from its short-term falling trend is indicating that the stock will see up move from current levels. Thus long position can be initiated here for the target of Rs184-188 with a stop loss of Rs159.