Healthy consolidation will set stage for next leg of upmove towards 10,000: ICICI Direct

A healthy consolidation can take the Nifty towards 10,000 in the coming days, brokerage firm ICICI Direct has said in a note.

"We believe a decisive break-out above 9,400 will pave the way for further acceleration of upward momentum towards the psychological (important) mark of 10,000 in the coming months," the brokerage said.

"Else consolidation in the broad range of 9,400-8,800, amid stock-specific action would make market healthy." the brokerage added.

As the Nifty has already rallied 25 percent from March low of 7,511, any cool off towards 8,800 due to global volatility should not be construed as negative instead it should be capitalised on as an incremental buying opportunity, the brokerage said. It expects intermediate correction to get anchored around key support threshold range of 8,800-8,500.

ICICI Direct said emerging markets follow developed markets and major US benchmarks had retraced 50 percent of their fall off February high at 29,568, showcasing strength.

"As the Nifty has retraced 38.2 percent of the entire corrective phase (12,430 – 7,511), at 9,400, we expect a catch-up activity would be seen in domestic indices in the coming weeks that would help the Nifty to head towards 50 percent retracement placed at 10,000," ICICI Direct said.

Since 2009, on eight out of 11 occasions, the index gave positive monthly returns in May, with an average gain of 3 percent, it said.

As the probability of positive return is high in May, the brokerage expects the index to trade with a positive bias with stock-specific action amid pessimism in the market owing to COVID-19.

Bank Nifty: Consolidation with positive bias augurs well for the next leg of upmove

The Bank Nifty has snapped a three-month decline and closed nearly 5 percent higher in April.

Over the last four weeks, the index is seeing a lack of faster retracement on either side, indicating contraction and continuation of the consolidation in the broad 21,000-18,000 range.

ICICI Direct believes only a firm closing above 21,000 will signal extension of the current up move and acceleration of upward momentum towards 23,000.

Strong resolve across developed market equities and an extended decline in India VIX index also highlight rejuvenation of sentiments, ICICI Direct said.

"These observations along with the fact that month of May has been favourable for bulls as on seven out of eleven occasions index have seen positive monthly close, with an average gain of 6 percent, which makes us believe that ongoing up move has further legs on the upside," said the brokerage.

It advises investors to capitalise any dip hereon towards the support area of 18,000-18,500 as an incremental buying opportunity for the next leg of the up move.