DAILY VOICE | Stocks in economy-related sectors could get re-rated: Sacchitanand Uttekar of Tradebulls Securities

All the economy-related sectors like auto, industrials and capital goods are coming into investor’s radar as there is an expectation of normalization of the economy around year-end and the first half of next year, Sacchitanand Uttekar – DVP – Technical (Equity), Tradebulls Securities, said in an interview with Moneycontrol’s Kshitij Anand.

Edited excerpt:

Q) Nifty closed marginally in the red. What fuelled the price action on D-Street while the index moved in a range as gains were capped around 11350 levels?

Sacchitanand Uttekar

DVP – Technical (Equity)|Tradebulls Securities

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A) The global rally in equity markets, ongoing domestic earnings scorecard & announcements related to vaccine development helped the sentiment-led rally to continue almost throughout the week until the final day when it gave up all its weekly gains.

The sentiment-driven up move got punctured due to a sharp fall in the US markets as the news hit the wires with regards to the postponement of the US stimulus package until September, which triggered a domino effect across most of the leading indices across the globe.

The Nifty too witnessed a sharp reaction from the upper end of its ongoing ‘Broadening formation’ which is placed around 11377. The pattern itself indicates consolidation & hence the oscillation within the framework of the pattern is expected to continue in the coming week.

We expect broad-ranged action within 11400-10900 with a negative bias to be witnessed in the coming week.

A) Sharp cut on the final day of the week broke the sequence of narrow ranged formations that had been occurring for 5 consecutive days.

The index also broke below its 6-days prior swing low in a single day itself triggering jitters amongst the trading fraternity.

Though the index was scaling upwards, its lack of strength was denoted by the regular occurrence of Dojis, which now got validated by the occurrence of a ‘Long Bearish Bar’ formation on the final day of the week.

The bearish pattern also reconfirms the resistance area of its Broadening formation placed around 11377. On the weekly scale, a ‘Spinning Top’ formation is a sign of indecisive action that could prevail in the coming week as well.

Hence it is ideal to remain cautious and restrict trades to short-term itself with more emphasis on stock-specific trade setups on either side.

Major trend weakness or distortion would only be valid once Nifty moves below 10880 for any larger degree corrective move to unfold; until then, we expect confined action within 10900-11400 even during the upcoming week.

A) All the economy-related sectors like Auto, Industrials, and Capital goods are coming into investor’s radar as there is the expectation of normalization of the economy around the year-end and first half of next year.

The talks of progress in vaccine for COVID-19 are increasing positive sentiment among market participants. Any pickup in demand will lead to earnings recovery and we might see many of the stocks in these sectors getting re-rated down the line.

A) Mid-cap and small caps seems to be getting their mojo back as they are starting to outperform large-cap peers. Renewed investors’ confidence and attractive fundamentals (relative valuation of midcaps vs large caps is still near to historically low) are key factors for investor’s preference in mid-cap & small-cap.

There is still huge investors’ appetite for equities as precious metals are considered too expensive for many participants and so investors are chasing fundamentally sound mid-caps & small-caps.

A) The market is looking slightly stretched even on its overall valuation front we have been advising investors to ramp up their exposures more into defensives like IT, Pharma & Non-durables as most of their constituents remain cash rich & less vulnerable towards any pandemic or financial led uncertainties.

While selective Financials, NBFC & Insurance stocks look more vulnerable in case of an uptick in global volatility which could dampen the sentiment for the rest of the month.

Sun Pharma has been sustaining well above its 200-weeks EMA placed around 515 from where it had also witnessed a major breakout from its Flag formation (continuation pattern on its weekly scale).

The recent pullback towards 20-Days EMA provides a good reward risk opportunity for fresh trading longs. Also, the occurrence of a ‘Bullish Harami’ on its daily scale compliments the support area around the 520-510 zone. Trading longs could be considered up to 510 with a stop below 495 for a pattern target up to 565

SMS Pharma has been trending well since its strong reversal around 52 zones in the month of June 2020. Positive sector outlook and the occurrence of ‘Bullish Belt Hold’ candlestick formation on its weekly scale indicates the ongoing up move to remain intact.

SMS Pharma so far has retraced 79% of its prior declining trend and the monthly RSI is yet to hit its overbought zone.

We expect the stock to revisit its life high level around 120, and the expected up move could be participated even with a trading stop now below 85.

HDFC Life ended the week below its 5-week EMA after 8 weeks of the up move. A fresh breakdown around 600 has activated the bearish inverse pennant formation which indicates an initial pattern target up to 570 which may witness an extension towards its 200 DEMA placed around 542 zones.

With the short term charts indicating weakness, trading shorts could be considered with a stop above 605 for targets close to 570 & 545.

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