Gold and Equity Markets Outlook II Details explained by ICICI Securities

Gold prices opened strongly higher with a gap on Tuesday and consolidated during most of the session in the range of Rs 47800 – Rs 48200 levels. Prices have bounced strongly in the last few sessions as investors weighed prospects for more stimulus in the US and the possibility of higher consumer prices against a focus on Bitcoin and stocks at a record. Therefore, ICICI Securities expect gold prices to remain positive towards Rs 48500 level in the short-term.
 
The Nifty started the session on a positive note and scaled a fresh all-time high of 15257. However, profit booking in the second half of the session pared initial gains. As a result, daily price action formed a small bear candle with shadows on either side, indicating stock specific action amid rise in volatility
 

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The formation of higher high-low signifies a prevailing up trend is intact, which makes us confident that the index would maintain its positive momentum and gradually head towards our earmarked target of 15500 in the coming month. Key point to highlight is that, past seven sessions 1660 points rally in Nifty hauled the daily stochastic oscillator in overbought territory (at 90), indicating a couple of days' temporary breather cannot be ruled out.
 
However, ICICI Securities believes for a temporary breather to materialise the index needs to decisively close below previous sessions' low (15064) else continuation of positive bias amid stock specific action as we expect broader market to relatively outshine the benchmark amid ongoing Q3FY21 result season. Thus, capitalising on dips to go long in quality large cap and midcap would be the prudent strategy to ride next leg of rally towards 15500, as it is 161.8% external retracement of past two week’s fall (14754-13596), at 15466.
 
The Nifty midcap and small cap indices are sustaining well above their January swing high post witnessing faster pace of retracement which augurs well for further acceleration of relative outperformance. The Nifty Midcap index has recorded a fresh all-time high, whereas the small cap index is still 20% away from all-time high. Therefore, ICICI Securities expect small caps to witness catch up activity.
 
Structurally, ICICI Securities do not expect the index to breach the key support threshold of 14600. Hence, any temporary breather from here on should not be construed as negative. Instead, it should be capitalised on to accumulate quality midcap and small cap stocks as we expect elevated buying demand to emerge around 14600, since it is confluence of 38.2% retracement of current up move (13597-15257), placed at 14622 coincided with earlier consolidation breakout area around 14650.