Nifty pullback on cards: Over 20 stocks to choose from 10 sectors

NEW DELHI: Domestic stock markets have taken a hefty beating so far in the current month as an unscheduled rate hike by the Reserve Bank of India followed by a rate increase by the US Federal Reserve caught equity traders off-guard.

So far in May, the Nifty50 has declined 5.5 per cent, with overseas investors carrying on with unprecedented sales of Indian equities amid higher US interest rates.

In the midst of all the gloom and uncertainty, ICICI Securities says certain technical indicators suggest that a fresh heavy downside in the headline index could be limited.

“The past four week’s corrective phase hauled weekly stochastic oscillator in extreme oversold territory (placed at 16), indicating impending pullback,” the brokerage said.

“Thus, dips should be attributed to construct a portfolio by accumulating quality stocks in a staggered manner as we expect the index to hold key support threshold of 15,600 being confluence of: a) 61.8% retracement of CY21 rally (13,596-18,604), at 15,510 b) since 2003, average intermediate correction has been to the tune of 14%.”

From the April high of 18,115 for Nifty50, a 14 per cent correction would mature at 15,580, the brokerage said.

ICICI Securities expects the index to hold key support threshold at 15,600 and then gradually stage a pullback towards the 17,100 level.

A key point emphasised by ICICI Securities was that historically in the past two decades, on 16 out of 20 occasions, despite transitory breaches of 52-week Exponential Moving Averages (currently 16,600), the index has generated decent returns in the following three and six months.

“In current scenario 5% from 200 DEMA will mature at 15,700.”

According to the brokerage, broader market indices are forming a higher base after maintaining the rhythm since 2006 of arresting secondary correction with 20 per cent and 30 per cent, respectively, within the framework of a structural bull market.

“Going ahead, we expect broader markets to continue their higher base formation amid oversold conditions and gradually resolve higher in coming months,” ICICI Securities said.

Over the past 20 years, in a secular bull market, with the exception of two instances, the average intermediate correction in Dow Jones and Nasdaq indices have been around 15 per cent and 25 per cent, respectively, ICICI Securities said.

The brokerage expects both the indices to stage a recovery as the two have corrected 13 per and 28 per cent, respectively.

“The empirical evidence displays that in last 3 cycles by Fed, despite initial knee jerk reaction post interest rate hike US and Indian equities have rallied over medium term,” the brokerage said.

TOP PICKS
The brokerage’s top picks in the BFSI sector include , and M&M Finance. Within the technology and telecom space, it favours TCS, HCL Technologies, , and .


In the capital goods segment, ICICI Securities picks Siemens, and , while in consumption its picks include , , Varun Beverages and Tata Consumer.

Within the automobile space, the brokerage’s picks include M&M, , and while its picks in infrastructure and realty include , , Phoenix Mills and .

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)