We expect strong buying demand to emerge 17,500 in Diwali week, says Dharmesh Shah of ICICI direct

We expect buying demand to emerge around key support threshold of 17,500 in the upcoming truncated week and undergo a higher base formation that would make the market healthy after 20 per cent rally seen over the past three months, Dharmesh Shah, Head – Technical, ICICI direct – said in an interview with Zeebiz’s Kshitij Anand. Edited excerpts:

Q) The markets saw a fall in momentum amid a flurry of global brokerage downgrades, as well as selling by foreign investors. What should retail investors make out of the price action? Should one stay put, buy the dip, or sell on rallies in the run-up to Diwali?

A) We expect buying demand to emerge around the key support threshold of 17,500 in the upcoming truncated week and undergo a higher base formation that would make the market healthy after the 20 per cent rally seen over the past three months.

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The key point to highlight since April 2020 is that -- time-wise, the index has not corrected for more than 2-3 consecutive weeks. In the current scenario, the index has already been corrected over the past two weeks.

We expect the index to maintain the rhythm by arresting ongoing correction in the next couple of weeks. Thereby, the ongoing corrective phase should not be construed as negative, instead, dips should be capitalized to build a quality portfolio over the medium term. Meanwhile, last week’s high of 18200 would act as an immediate hurdle.

Q) What does the F&O data suggest for the November series? Which are the important levels investors should watch out for the Nifty and the NiftyBank?
 
A) In the recent weakness in the Nifty, liquidation of positions was observed, and the Nifty futures open interest declined from 1.26 crore shares to 1.04 crore shares.

Continued FIIs selling in the equity segment has kept selected stocks under pressure. They have sold Rs 13,000 crore in the last week itself, where we saw the Nifty correction from 18600 levels to 17900.

In the October series, we saw the Nifty breach its major Put base of the 18000 levels. The next support for the Nifty is placed within a range of the 17400-17600 levels as monthly and weekly Put bases are forming at this range.

However, on the upside, 18100, which was the VWAP level of the October series, should be an immediate hurdle above which fresh positive bias should be formed.

We believe that in the November series, the Nifty may consolidate in a broader range, and at higher levels, we may see bouts of profit-taking in the coming weeks.

Bank Nifty:

As far as the Bank Nifty is concerned, we believe that the outperformance seen last month may continue in the coming weeks as well. Selected private banks and PSU banks have witnessed long additions in the future as well as the delivery front.

On the options front, 38000 and 39000 Put hold a significant Put OI that should be major support on the downside.

We believe a buy-on decline strategy should be approached in the Bank Nifty at support levels.

Q) Where do you see the markets headed in November and any key triggers (global and domestic), which one should watch out for?

A) Market participants will remain vigilant ahead of US Federal Reserve monetary policy meeting scheduled on 2nd- 3rd November.

The market is expecting the US Fed to give the details on tapering of bond purchasing program like when will it start and the pace of tightening.

Another event that will be focused on is the OPEC+ meeting scheduled on November 4. The organization is likely to stick to its plan of adding 400,000 barrels per day of supply each month until April 2022

Q) The multibagger of 2021, IRCTC, saw a 40% dip from the highs, which effectively puts the stock in a downtrend. What should investors do?

A) IRCTC has seen a volatile move in the past few days, which we believe could have been related to the concerns over likely policy decisions of Indian Railways.

With Indian Railways now rolling back its decision of taking 50% share of convenience charge, which is 70% of its EBIT, the concern w.r.t. Indian Railways policy impacting the business of IRCTC is now mitigated.

Keeping aside these policy-related issues, IRCTC continues to remain the most transacted website in the Asia Pacific with a transaction volume of over 25 million per month and 5.5 million logins per day.

In India, E-booking penetration is currently 73% of the total reserved train ticketing (FY20) and this is projected to reach 81-83% by FY24E.

With growth levers in place across segments like internet ticketing, catering, hospitality, we expect IRCTC’s growth trajectory to remain healthy.

Hence, we advise long-term investors to ‘HOLD’ the stock. New investors can start with a small SIP in this counter. Unlike other loss-making platforms, IRCTC is into the monopolistic and high-margin segment.

With a total user base of 6.6 crore+, it has huge potential to create value unlocking across other tourism-related segments with its vast customer base.

Q) The numbers of stocks hitting a fresh 52-week high have also slowed down from 300-500 a week back to just a little over 100. Does this signal formation of a top for now?

A) The Nifty50 has witnessed a strong 20% gain in the past three months and last week’s price action indicates a loss of upward momentum. We expect the index to undergo a healthy consolidation in the coming weeks, which will make the structural uptrend healthier.

Q) What are your 3-5 stock ideas for the November series?

A) We recommend United Spirits, Federal Bank, and Prestige estates for the medium-term horizon.

Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.