Though, headline index for the week was up by 2.7 percent, it does not really echo the street sentiment.
Pritesh Mehta
Indian markets had all the ingredients to take the foot off the pedal in Friday's session. To begin with, global markets were in red, in the opening trades sharp cut was seen in both the key indices back home. However, index heavyweight Reliance Industries had another idea, it stood against the tide by rallying over 4 percent, thereby restricting the damage on the benchmark Nifty.
Eventually, the index closed lower by just 21 points. Friday's trade could well be described as an act of defiance. Despite gloomy cues, the index did well to recover from the low of 11,090 placed near three-digit Gann number of 111(00). Till Nifty sustains above confluence of Gann numbers placed around 11,000 mark, the positive bias will prevail in the market. Currently, the index is in a sweet spot, where we are witnessing gradual upside move every other day, and even retracement/corrective moves are short-lived.
At around 11,000 after having defied the negative cues of early 2020, Nifty must surely sound like music to investors' ears. The index has indeed surpassed a rather slippery wall of worries, thanks to the strength in select biggies. However, Nifty Midcap and Nifty 500 index is lacking the momentum shown by benchmark Nifty. Ratio chart of Nifty 500/Nifty50 is marking series of lower tops and lower highs last week of June 2020, implying underperformance of broader markets. Similarly, ratio of Midcap/Nifty50 shows a break of rising trendline (from the low of April 2020). So, broader participation is missing at current juncture.
Even the advance/decline ratio of Nifty components was heavily tilted in favour of bears, despite a recovery from day's low in Friday's session. With Nifty 500 index, around 77 percent of components are trading above its 20-DMA as on Thursday, the trend has been sliding lower since the week of June 2020, it implies that short-term breakouts are not sustaining in the current environment and select outperformers are pushing the markets higher. Going ahead, Nifty's multiple peaks near 11,250 with momentum indicators like RSI turning lower at overbought zone could mean possible price consolidation after the sharp rally.
Though the headline index for the week was up by 2.7 percent, it does not really echo the street sentiment. Financials & BankNifty had a catch-up move this week post months of underperformance. However, daily price ratio chart of Nifty Private Bank index versus BankNifty clearly shows that it is hovering beneath the hurdle zone. Even, ratio of BankNifty/Nifty in last two weeks has broken below support of its 50-DMA. The same is expected to act as a hurdle going ahead.
With support base shifting higher as index gradually keeps moving higher, the downside is expected to be restricted till 11,000 mark. During a period where the index is creating whipsaws, and broader participation is dwindling, the current rally would gain credence only on a convincing move above 11,300.
IT Index has been a major mover in this month so far, up by around 16 percent. However, the internals of the Nifty IT index clearly indicates that there are a clear set of underperformers and outperformers and TCS fits the bill of an underperformer. Ratio chart of TCS/Nifty IT index has seen a sharp decline from March 2020, it implies that it has underperformed Nifty IT index. Break below rising trendline and a move below 3-year mean indicates further underperformance of TCS against the Nifty IT index. Meanwhile, within the index, the focus should be on outperformers like HCL Technologies, Tech Mahindra and Infosys, wherein steady gains are expected.
The author is Lead Technical Analyst - Institutional Equities at YES Securities.
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