Technical Strategy - ICICI Directcontent.icicidirect.com › mailimages › IDirect_MonthlySectoral_May1… · Ninad Tamhanekar, CMT ... resume their up move. They are likely to perform

Research Analysts

Dharmesh Shah

[email protected]

Pabitro Mukherjee

[email protected]

Nitin Kunte, CMT

[email protected]

Vinayak Parmar

[email protected]

Ninad Tamhanekar, CMT

[email protected]

Technical Strategy

Getting ready to march post corrective blip…

May 2019

April 24, 2019

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Technical Outlook..

April 24, 2019 ICICI Securities Ltd. | Retail Equity Research 2Source: Bloomberg, ICICI Direct Research

Getting ready to march post corrective blip…

NSE Nifty Weekly Bar Chart

The Nifty scaled new lifetime highs (11856), on expected lines in

April 2019, followed by consolidation (11850–11550), which is a

normal phenomenon after 18.5% rally in the past six months.

Anxiety around General Elections has always triggered volatility in

the past. However, markets always steer clear of it once anxiety

settles down, irrespective of the outcome. During the past three

General Elections we observed, Nifty exhibits a robust performance

post the election phase, which makes us confident that volatility

owing to major event would present a good opportunity to build a

long term portfolio, as we do not foresee the Nifty going below its

key support base of 10900 around election outcome. Therefore,

investors should start accumulating quality midcap stocks in a

staggered manner.

Over the past 14 sessions Nifty Midcap retraced 78.6% retracement

of the preceding five session rally. A shallow price correction along

with elongated time consolidation form key ingredients of a healthy

corrective phase and reaffirms the overall bullish price structure.

Resistance @ 11856

Sectors likely to outperform on Relative Strength Model

Realty stocks witnessed a sharp improvement on relative score

while banking stocks consolidated along with the market while

maintaining its leadership role. We believe both these sectors will

continue their outperformance in relative terms.

The price structure of IT stocks remains positive. They are

resuming their fresh up move and are likely to outperform in

coming months.

Healthcare and capital goods stocks have seen an improvement

in price structure. We expect these stocks to perform in the next

leg of the up move.

After the recent consolidation, FMCG stocks are expected to

resume their up move. They are likely to perform at par with the

market.

Relative Rotation Graph: Cyclicals to outperform

Key support

threshold

@10900

----

----

P

ote

nti

al R

etu

rns (

%)

---

----

-

-5

-10

-15

-20

0

5

10

15

20

25

30

35

40

1 2 4 5

-------- Technical Ranking --------

3

Returns RankingReturns Ranking

Returns Ranking RankingReturns

Improving

Capital Goods,

Pharma

Outperformers

Banks, Realty, IT

Market Performers

Oil & Gas, FMCG,

Metals

Neutral

Auto

* Ranking improves from 1 to 5

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Election Year: Cyclicals to drive...

In two out of three occasions, the markets behaved indecisively five

months prior to elections. In contrast, throughout the past three

elections, both Nifty and Nifty 500 indices exhibited a robust

performance seven months post the election phase with average

returns of 27% and 33%, respectively

During all three election years, pharma & BFSI have remained

positive whereas auto, capital goods, construction and infra sectors

have relatively outperformed during an election year

During seven months post elections, all

sectors performed and clocked double

digit gains

April 24, 2019 ICICI Securities Ltd. | Retail Equity ResearchSource: Bloomberg, ICICI Direct Research

Among defensives, FMCG and pharma have

relatively outperformed five months prior to

elections. In contrast, consumer discretionary and

IT have outperformed seven months post elections

2

5 Months Pre -

Election

7 Months Post -

Election

5 Months Pre -

Election

7 Months Post -

Election

5 Months Pre -

Election

7 Months Post -

Election

Index Nifty -8 22 26 43 13 15

Index Nifty 500 -6 26 23 53 14 21

Cyclical Auto & Components -12 45 16 120 28 80

Cyclical BFSI 0 46 5 70 20 43

Cyclical Capital Goods -12 67 6 89 23 44

Cyclical Cement -2 67 10 69 33 53

Cyclical Construction and Infra -8 63 37 112 38 28

Cyclical Energy -11 36 52 58 22 14

Cyclical Metals -25 77 34 123 17 -1

Cyclical Power -14 52 37 45 13 16

Defensive Consumer discretionary -20 83 -5 106 20 36

Defensive FMCG -5 51 38 82 7 27

Defensive IT -27 55 9 119 8 34

Defensive Pharmaceuticals 1 39 28 89 11 31

SectorsSector's Nature

Sectoral Election Year Trend (Returns in %) Universe: Nifty 500

20142004 2009

Click here to go to top

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April 24, 2019 ICICI Securities Ltd. | Retail Equity Research

NSE (Nifty): 11576

11760

7894

o The outcome of the general election

2019 will have a significant bearing

on the future course of market

direction. Thus, volatility ahead of

key event cannot be ruled out.

However, we do not foresee the Nifty

sustaining below 10900 in this phase

o Historically, elevated volatility during

General Elections have always

offered a good entry opportunity for

investors. Hence, investors should

start building a long term portfolio by

accumulating quality midcap stocks

in a staggered manner

o Structurally, the current rally (18.5%)

off October 2018 low (10005) is

larger in magnitude compared to the

March-August 2018 rally (18.2%). A

rally getting bigger in magnitude

compared to preceding up moves is a

sign of strength and indicates the

firm grip of bulls in the present

scenario

o However, possibility of a temporary

breather cannot be ruled out to cool

off the overbought situation, aiding

the index to form a higher base on

the larger degree chart

Weekly RSI oscillator tilted downward amid sustaining above its nine period average, suggesting temporary breather

Nifty – Weekly Bar Chart

10005

10585

11171

9952

8968

Major support threshold at 11000 - 10900

as it is:-

78.6% retracement of 10585–11856 at

10858

52 weeks SMA at 10920

Upward sloping trend line 10820

10985

Technical Outlook

2Source: Bloomberg, ICICI Direct Research

18.2%18.5%

11856

Elongated up trend signifies firm grip of bulls, auguring well for next leg of up move

6826

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Shallow price retracement signifies inherent strength of broader market

48 Months SMA

o The Nifty Midcap has undergone a

secondary phase of consolidation after

last month’s sharp up move (9%) post

bouncing from its 14 month’s cycle

low around 16000

o The current consolidation phase is

seen as a healthy breather taken by

bulls to gather steam before their

northward journey

o In the process, over the past 14

sessions, the index has retraced 78.6%

of the preceding five session rally. A

shallow price correction along with

elongated time consolidation form the

key ingredients of a healthy corrective

phase and reaffirm the overall bullish

price structure

o We believe the current corrective fall

will find its feet around the 61.8%

Fibonacci retracement of February-

April rally (16045–18463), at 16970.

Overall, this consolidation would set

the stage for the next leg of the up

move

o Meanwhile, elevated volatility amid

General Election 2019 would offer

bargain buy opportunities. Hence, we

advise investors to focus on

accumulating quality midcap stocks

with improved earnings to ride the

next leg of the up move

Nifty Midcap 100 – Monthly Bar ChartTechnical Outlook


14

Months

14

Months

14

Months

14

Months

Midcap 100 - Daily Bar Chart

Shallow retracement signifies

robust price structure

Retraced

78.6%

14 Days

5 Days

Monthly RSI oscillator hovering above its nine period average, suggesting positive bias

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Consolidation at lifetime high; augurs well for next leg of up move …

28388

o The Bank Nifty consolidated in a

range after a stupendous rally of

more than 13% during March 2019 as

concerns regarding higher crude oil

prices surfaced. Last month’s

consolidation in a broad range of

29500-30650 has helped the index in

forming a higher base for the next leg

of the up move

o We witnessed similar narrow range

consolidation during April 2014 ahead

of the General Election. However,

anxiety ahead of General Elections

have always offered a good buying

opportunity for investors

o Volatility is likely to increase as we

approach the outcome of the General

Election. However, despite volatility,

we expect the Bank Nifty to hold

above the major support area of

28600-28300. Any corrective decline

towards the same will provide a fresh

buying opportunity

o The Bank Nifty has reacted lower

twice from 30650 during April 2019,

which will continue to act as a hurdle

in the coming month

Weekly MACD inching upward, suggesting positive bias

Bank Nifty – Weekly Bar Chart

20575

27652

17606

24240

26617

Major long term support at 28300-28600 as it is:

50% retracement of (26617-30008)

The previous breakout area being the high

of Aug’18

Immediate hurdle

@ 30650

Technical Outlook


23606

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Sectoral merry-go-round: Cyclicals to drive

o Realty stocks witnessed a sharp

improvement on relative score while

banking stocks consolidated along

with the market while maintaining

its leadership role. We believe both

these sectors will continue their

outperformance in relative terms

o The price structure of IT stocks

remains positive. They are resuming

a fresh up move. They are likely to

outperform in coming months

o Healthcare, capital goods stocks

have seen an improvement in price

structure. We expect these stocks

to perform in the next leg of up

move

o Oil & gas and metal stocks have

been consolidating after the recent

up move. They are likely to remain

market performers in coming month

o After recent consolidation, FMCG

stocks are expected to resume their

up move. They are likely to perform

at par with the market

o Auto stocks have witnessed relative

strength during last month as they

moved into improving quadrant.

However, the current up move is

seen as a pullback after sharp fall.

Auto stocks are likely to enter a

base formation in the coming month

Outlook


Relative Rotation Graph – Month on Month

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Sectoral Indices – Relative to benchmarks

Relative Strength Comparative: Evaluating the underlying strength

• The index has formed a higher base

around 14000 after a strong up move in

CY18, indicating constructive

improvement in price structure

• The RSC line oscillating in a range

indicates a breather in relative

outperformance

• Going ahead, we expect the technology

space to outperform in upcoming month of

volatility as we approach General Election

outcome

• Technically, TCS, Tech Mahindra, HCL

Tech, FSL remain robust on the price

structure front

• To closely gauge the underlying strength in the respective sectors vis-à-vis the benchmark, we analyse the Relative Strength Comparative (RSC) indicator. As the name suggests, it is a

comparative measure of strength vis-à-vis a benchmark or a sector

• While the RSC line is rising, the sector is outperforming the general market i.e. it is either rising faster than the benchmark in an up trending market or going down less, in a down

trending market or even rising. While the RSC line is falling, the sector is underperforming the broad equity market. If the market is going up, the sector is going up less or may be even

going down. If the market is going down when the RSC line is falling, the sector is going down more than the market. A flat RSC line indicates in line market performance going up or

down by the same magnitude

• The purpose of this exercise is to identify those sectors that are outperforming and avoid sectors that are underperforming

Structural up trend intact

NSE IT – Monthly Chart NSE IT Index vs. Nifty – Relative Comparison NSE IT Index

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• The index has maintained higher high-low

formation after bouncing from key long

term trend line support, indicating

resumption of up trend

• The RSC line, however, is languishing

below 0.50 levels where we may expect it

to bottom out and resume outperformance

in coming months

• Going ahead, we expect the capital goods

index to extend its rally towards 20000

• L&T, Kalpataru Power and KEC are looking

structurally positive on price charts

• The March-April rally has resulted in faster

retracement of the last falling segment

indicating a positive turnaround. We expect

the index to hold above 14000 and

eventually rally in coming months towards

16500-17000

• The RSC line is placed at lower band of

rising channel, and is likely to see an

outperformance in coming months aided by

positive price structure

• Structurally, gas distributors like MGL are

expected to do well

BSE Capital Goods – Monthly ChartBSE CG vs. Sensex – Relative Comparison BSE Capital goods Index

Index expected to form higher base

above14000 and resume rally

BSE Oil & Gas – Monthly Chart BSE Oil & Gas IndexBSE Oil & Gas vs. Sensex – Relative Comparison

Relative ratio likely to bottom out

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• The index is undergoing a healthy

consolidation while stock specific

performances are expected to continue

• In relative terms, we expect the sector to

perform in tandem with benchmark

• Structurally, ITC, Marico, Nestlé are

looking positive on price chart while

Hindustan Unilever and Colgate Palmolive

are placed at support levels offering

favourable risk-reward set up

• Among consumer discretionary space,

Havells, Voltas and Supreme Ind. are

looking structurally positive

• The index took a breather after sharp rally

in March 2019, making market healthy

• The RSC line is seen pointing higher after

triple bottom indicating relative out

performance

• Going ahead, we expect the real estate

space to extend its outperformance backed

by broad based participation and volatility

around election results would offer

incremental buying opportunity

• Oberoi Realty, Godrej Properties, Phoenix

Mills are looking structurally positive while

Brigade Enterprises and Sobha offers

favourable risk-reward set up

Elongated consolidation augurs

well for larger up trend

On relative terms, sector likely to perform

at par with benchmark

Falling channel breakout augurs well

for structural up trend

NSE FMCG– Monthly Chart NSE FMCG Index vs. Nifty – Relative Comparison NSE FMCG Index

BSE Realty – Monthly Chart BSE Realty vs. Sensex – Relative Comparison BSE Realty Index

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• The Metal Index maintained higher high-

low on monthly scale amid stock specific

activity in April 2019

• The RSC line, however, continues to head

south, highlighting the relative

underperformance of the metals space

• Going ahead, we expect the Metal Index

to form a base while the ferrous space is

expected to do well. However, in relative

terms, the sector is likely to continue its

underperformance

• We like Tata Steel and Jindal Steel &

Power from risk-reward perspective

• The Pharma index bounced back from its

CY18 after forming triple bottom

• The RSC line is still trending down

indicating relative under performance of the

sector

• Going ahead, we expect the pharma space

to see a decent pullback after base

formation over the past six months. We

expect the index to head towards 10000

• Stocks like Glenmark Pharma, Lupin, Suven

Lifescience, Hikal remain structurally

positive

Early signs of revival

Higher low at

61.8% retracement

BSE Metal – Monthly Chart BSE Metal vs. Sensex– Relative Comparison BSE Metal Index

NSE Pharma– Monthly Chart NSE Pharma Index vs. Nifty – Relative Comparison NSE Pharma Index

Relative underperformance to continue

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• The index continues to form a lower high

low sequence indicating well defined down

trend. The RSC line remains in a sharp

down trend highlighting relative

underperformance

• The index has corrected 50% from its highs

over the past year, which has rendered

prices to the oversold trajectory. With a

weak price structure and oversold

readings, we expect the sector to trade in

a range and relatively under perform

• We expect Maruti Suzuki, Hero MotoCorp

to offer a favourable risk reward. They are

expected to see a pullback

BSE Auto – Monthly Chart BSE Auto vs. Sensex – Relative Comparison BSE Auto Index

Relative under performance to continue

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Forthcoming Economic Event Calendar

April 24, 2019 ICICI Securities Ltd. | Retail Equity ResearchSource: Bloomberg, ICICI Direct Research

Date Event Date Event

US China

1-May FOMC Rate Decision (Upper Bound) 2-May Caixin China PMI Mfg

1-May FOMC Rate Decision (Lower Bound) 6-May Caixin China PMI Composite

9-May Initial Jobless Claims 10-May New Yuan Loans CNY

9-May Continuing Claims 15-May Retail Sales YoY

10-May CPI MoM/YoY 16-May New Home Prices MoM

15-May Industrial Production MoM 16-May Industrial Production YTD YoY

21-May Existing Home Sales MoM 20-May FX Net Settlement - Clients CNY

30-May GDP Annualized QoQ 27-May Industrial Profits YoY

31-May PCE Deflator MoM 30-May Swift Global Payments CNY

31-May U. of Mich. Sentiment 31-May Manufacturing PMI

India UK

2-May Nikkei India PMI Mfg 1-May Markit UK PMI Manufacturing SA

6-May Nikkei India PMI Services 2-May Markit/CIPS UK Construction PMI

10-May Industrial Production YoY 2-May Bank of England Bank Rate

13-May CPI YoY 10-May Industrial Production YoY

15-May Wholesale Prices YoY 22-May Retail Sales Ex Auto Fuel MoM

31-May GDP YoY 23-May CBI Retailing Reported Sales

31-May Fiscal Deficit INR Crore 31-May GfK Consumer Confidence

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Notes to RRG Charts......

April 24, 2019 ICICI Securities Ltd. | Retail Equity Research 14

In this section, we focus on the relative performance of the BSE sectoral indices. The adjacent scatter chart highlights the relative performance of various sectors of the BSE relative to the

Sensex with the y-axis plotting the relative price momentum and the x-axis plotting the relative price. The chart is then subdivided into four quadrants. The details of each quadrants has been

explained in the notes at the end of the report.

Leadership quadrant: Top right is “Leadership” quadrant, which represents a sector that has strengthened in relative price and momentum vis-à-vis the Sensex.

Weakening quadrant: Bottom right is the “Weakening” quadrant where the relative price of a sector has started to deteriorate and momentum has started to slow.

Lagging quadrant: Bottom left is the “Lagging” quadrant where the relative price of a sector has become negative with momentum suggesting underperformance vis-à-vis the benchmark.

Improving quadrant: Top left is the “Improving” quadrant where the relative price trend of the sector has started to rise with momentum.

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Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]


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We /I, Dharmesh Shah, Nitin Kunte, Ninad Tamhanekar, Pabitro Mukherjee, Vinayak Parmar Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the

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Technical Strategy - ICICI Directcontent.icicidirect.com › mailimages › IDirect_MonthlySectoral_May1… · Ninad Tamhanekar, CMT ... resume their up move. They are likely to perform