Banks, NBFCs, consumption likely to outperform: 3 stocks with 8-15% return in short term

Manish Srivastava

It might give an impression that bulls have taken the rally forward in Nifty50, if we look at the prices on a weekly closing basis but things are not as embellished as it is appearing. Even though the gain of more than 150 points has been registered in the week gone by but, the behaviour of bulls during the last trading week is raising a question mark on the strength of an ongoing rally. Gap up opening on July 6 could not attract the follow up buying and prices remained sideways throughout the week just below its 200-day simple moving average, which is placed at 10,876. The inside day pattern on a daily time frame which was followed by "Doji" on Friday's trading session and indecisive small body candle in a weekly time frame suggesting that rally is losing steam and a phase of distribution might start in coming days.

An index is likely to remain sideways in the range of 10,880 to 10,680 in the forthcoming trading week with slightly negative bias. Breaking below the lower range i.e. 10,680 could result in profit booking and slide in such case can be expected till 10,528 and even till 20 DMA which is placed at 10,428. Having a glance with the birds-eye view and considering the advanced Fibonacci system, Nifty50 is trading with "justified good above series" and rallied after trading the "master high" of 10,328.50 formed on June 8. The same master high will now act as strong support in coming days on the way down and until the prices are trading above it, the medium-term trend will remain up but short term volatility will not be ruled out.

Bank Nifty on the other hand looks more lucrative and could outperform Nifty50 in the coming days. When Nifty is trading near its 200 DMA, the Bank Nifty is still trading far below its 200 DMA which is placed at 26,340 indicating that it has more headroom for rally. The trend reversal buying is emerging in many banking stocks and range breakout along with positive moving average crossover can be seen in the banking index itself.

Banks, non-banking financial sector, and consumption stocks could offer decent gains during the expected subdued phase of Nifty50. We have identified three stocks that could offer an 8 to 15 percent return in the short term.

Mahindra & Mahindra Financial Services: Buy | CMP: Rs 204.1 | Target: Rs 235 | Stop loss: Rs 188 | Return: 13.5 percent

The stock has been hammered quite intensely in the month of February and March 2020. The fall has been abated in March-end and since then the counter has been consolidating and forming a base. Recently, the breakout of a base formation is visible on the chart along with a bullish crossover of major short term and medium-term moving averages. The prices have also breached its 23.6 percent retracement level of intermediate swing move and likely to move towards 38.2 percent retracement level which is placed at Rs 232. Traders can initiate long positions at current market price (CMP) and on any dip till Rs 195. The positions can be held with the short term perspective.

State Bank of India: Buy | CMP: Rs 195.60 | Target: Rs 225 | Stop loss: Rs 180 | Return: 15 percent

We have identified and recommended the stock earlier as well at Rs 158 levels when it was trading at a multi-year support zone. This is a follow-up call as the stock has bounced back from the important support levels and formed a bullish candlestick pattern on the monthly chart. Bullish "harami" pattern has formed in the monthly time frame last month and follow up buying has also witnessed in the current month.

In the daily time frame, the stock is on the verge of breaking out from an "inverse head & shoulder" pattern. The RSI has started trading in a bullish zone for the first time in the current year and other momentum indicators are also trading with a bullish bias. The upward slope of short term moving averages suggesting that stock is poised for a breakout and can be bought for short term gain.

Hindustan Unilever: Buy | CMP: Rs 2,223.80 | Target: Rs 2,405 | Stop loss: Rs 2,120 | Return: 8 percent

The stock has been consolidating near its 20-day moving average for quite some time and looking poised for a fresh upmove. The prices have witnessed bullish crossover of major short term and medium-term moving averages. After hitting the fresh lifetime high in April 2020, the counter went through mild correcting but kept its higher top and higher bottom cycle intact. The RSI has now started trading in a bullish zone and other momentum indicators are also going through positive crossover, suggesting bullish momentum is building up in the counter. The stock is likely to outperform the benchmark indices and can be bought for short term gain.

Note: Closing price as per NSE on July 10 is taken as CMP.

The author is Technical Analyst (Equity & Currency) at Rudra Shares & Stock Brokers.