Getting ready to march post corrective blip - ICICI Direct
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Technical Strategy
Getting ready to march post corrective blip…
May 2019
Research Analysts
Dharmesh Shah Nitin Kunte, CMT Ninad Tamhanekar, CMT
dharmesh.shah@icicisecurities.com nitin.kunte@icicisecurities.com ninad.tamhanekar@icicisecurities.com
Pabitro Mukherjee Vinayak Parmar
pabitro.mukherjee@icicisecurities.com vinayak.parmar@icicisecurities.com
April 24, 2019
Getting ready to march post corrective blip…
Technical Outlook.. NSE Nifty Weekly Bar Chart
TECHNICAL SECTORAL
The Nifty scaled new lifetime highs (11856), on expected lines in Resistance @ 11856
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April 2019, followed by consolidation (11850–11550), which is a
normal phenomenon after 18.5% rally in the past six months.
MONTHLY MOMENTUM
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 Key support
post the election phase, which makes us confident that volatility threshold
@10900
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.
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Sectors likely to outperform on Relative Strength Model Relative Rotation Graph: Cyclicals to outperform
Realty stocks witnessed a sharp improvement on relative score
while banking stocks consolidated along with the market while
40 Returns Ranking Returns Ranking
maintaining its leadership role. We believe both these sectors will
Equity
continue their outperformance in relative terms. 35
30
Improving Outperformers
– Retail
-------- Potential Returns (%) --------
25
The price structure of IT stocks remains positive. They are
– Retail
Capital Goods, Banks, Realty, IT
20
resuming their fresh up move and are likely to outperform in Pharma
15
coming months.
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10
5
Healthcare and capital goods stocks have seen an improvement
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0
Market Performers
in price structure. We expect these stocks to perform in the next Neutral
-5 Oil & Gas, FMCG,
leg of the up move. Auto Metals
-10
-15
After the recent consolidation, FMCG stocks are expected to
resume their up move. They are likely to perform at par with the
-20 Returns Ranking Returns Ranking
1 2 3 4 5
market. -------- Technical Ranking --------
* Ranking improves from 1 to 5
Source: Bloomberg, ICICI Direct Research
April 24, 2019 ICICI Securities Ltd. | Retail Equity Research 2Election Year: Cyclicals to drive...
In two out of three occasions, the markets behaved indecisively five
TECHNICAL SECTORAL
During seven months post elections, all
months prior to elections. In contrast, throughout the past three
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sectors performed and clocked double
elections, both Nifty and Nifty 500 indices exhibited a robust digit gains
performance seven months post the election phase with average
MONTHLY MOMENTUM
returns of 27% and 33%, respectively
Sectoral Election Year Trend (Returns in %) Universe: Nifty 500
2004 2009 2014
Sector's Nature Sectors 5 Months Pre - 7 Months Post - 5 Months Pre - 7 Months Post - 5 Months Pre - 7 Months Post -
Election Election Election Election Election 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
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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
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Cyclical Metals -25 77 34 123 17 -1
– Retail
Cyclical Power -14 52 37 45 13 16
– Retail
Defensive Consumer discretionary -20 83 -5 106 20 36
Defensive FMCG -5 51 38 82 7 27
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Defensive IT -27 55 9 119 8 34
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Defensive Pharmaceuticals 1 39 28 89 11 31
During all three election years, pharma & BFSI have remained Among defensives, FMCG and pharma have
positive whereas auto, capital goods, construction and infra sectors relatively outperformed five months prior to
have relatively outperformed during an election year elections. In contrast, consumer discretionary and
IT have outperformed seven months post elections
Source: Bloomberg, ICICI Direct Research
April 24, 2019 ICICI Securities Ltd. | Retail Equity Research Click here to go to top
2NSE (Nifty): 11576
Nifty – Weekly Bar Chart Elongated up trend signifies firm grip of bulls, auguring well for next leg of up move
Technical Outlook
TECHNICAL SECTORAL
11760 11856
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o The outcome of the general election
2019 will have a significant bearing
11171 18.5%
18.2% on the future course of market
MONTHLY MOMENTUM
direction. Thus, volatility ahead of
key event cannot be ruled out.
10585 However, we do not foresee the Nifty
sustaining below 10900 in this phase
10985 9952 10005
o Historically, elevated volatility during
General Elections have always
offered a good entry opportunity for
8968 investors. Hence, investors should
start building a long term portfolio by
accumulating quality midcap stocks
Major support threshold at 11000 - 10900 in a staggered manner
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as it is:-
78.6% retracement of 10585–11856 at o Structurally, the current rally (18.5%)
7894 10858 off October 2018 low (10005) is
52 weeks SMA at 10920 larger in magnitude compared to the
Upward sloping trend line 10820
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March-August 2018 rally (18.2%). A
rally getting bigger in magnitude
– Retail
compared to preceding up moves is a
6826
– Retail
sign of strength and indicates the
firm grip of bulls in the present
scenario
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o However, possibility of a temporary
breather cannot be ruled out to cool
Weekly RSI oscillator tilted downward amid sustaining above its nine period average, suggesting temporary breather
off the overbought situation, aiding
the index to form a higher base on
the larger degree chart
Source: Bloomberg, ICICI Direct Research
April 24, 2019 ICICI Securities Ltd. | Retail Equity Research 2Shallow price retracement signifies inherent strength
of broader market
Nifty Midcap 100 – Monthly Bar Chart 14 Technical Outlook
TECHNICAL SECTORAL
Months
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o The Nifty Midcap has undergone a
secondary phase of consolidation after
MONTHLY MOMENTUM
last month’s sharp up move (9%) post
bouncing from its 14 month’s cycle
low around 16000
14
o The current consolidation phase is
Months
seen as a healthy breather taken by
bulls to gather steam before their
northward journey
14 14 48 Months SMA o In the process, over the past 14
Months Months sessions, the index has retraced 78.6%
Midcap 100 - Daily Bar Chart of the preceding five session rally. A
14 Days shallow price correction along with
Retraced elongated time consolidation form the
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5 Days 78.6% key ingredients of a healthy corrective
phase and reaffirm the overall bullish
price structure
o We believe the current corrective fall
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Shallow retracement signifies will find its feet around the 61.8%
robust price structure Fibonacci retracement of February-
– Retail
April rally (16045–18463), at 16970.
– Retail
Overall, this consolidation would set
Monthly RSI oscillator hovering above its nine period average, suggesting positive bias the stage for the next leg of the up
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move
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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
Source: Bloomberg, ICICI Direct Research
next leg of the up move
April 24, 2019 ICICI Securities Ltd. | Retail Equity Research 2Consolidation at lifetime high; augurs well for next
leg of up move …
Bank Nifty – Weekly Bar Chart Technical Outlook
Immediate hurdle
TECHNICAL SECTORAL
@ 30650
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o The Bank Nifty consolidated in a
range after a stupendous rally of
MONTHLY MOMENTUM
28388 more than 13% during March 2019 as
concerns regarding higher crude oil
27652 prices surfaced. Last month’s
consolidation in a broad range of
29500-30650 has helped the index in
26617 forming a higher base for the next leg
of the up move
24240 o We witnessed similar narrow range
23606 consolidation during April 2014 ahead
Major long term support at 28300-28600 as it is: of the General Election. However,
anxiety ahead of General Elections
50% retracement of (26617-30008)
have always offered a good buying
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The previous breakout area being the high
of Aug’18
opportunity for investors
o Volatility is likely to increase as we
approach the outcome of the General
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Election. However, despite volatility,
17606 we expect the Bank Nifty to hold
– Retail
Weekly MACD inching upward, suggesting positive bias above the major support area of
– Retail
28600-28300. Any corrective decline
towards the same will provide a fresh
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buying opportunity
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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
Source: Bloomberg, ICICI Direct Research
April 24, 2019 ICICI Securities Ltd. | Retail Equity Research 2Sectoral merry-go-round: Cyclicals to drive
Relative Rotation Graph – Month on Month Outlook
TECHNICAL SECTORAL
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o Realty stocks witnessed a sharp
improvement on relative score while
MONTHLY MOMENTUM
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
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to perform in the next leg of up
move
o Oil & gas and metal stocks have
been consolidating after the recent
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up move. They are likely to remain
market performers in coming month
– Retail
o After recent consolidation, FMCG
– Retail
stocks are expected to resume their
up move. They are likely to perform
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at par with the market
o Auto stocks have witnessed relative
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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
Source: Bloomberg, ICICI Direct Research
April 24, 2019 ICICI Securities Ltd. | Retail Equity Research 2Sectoral Indices – Relative to benchmarks
Relative Strength Comparative: Evaluating the underlying strength
TECHNICAL SECTORAL
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• 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
MONTHLY MOMENTUM
• 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
NSE IT – Monthly Chart NSE IT Index vs. Nifty – Relative Comparison NSE IT Index
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Structural up trend intact
• The index has formed a higher base
around 14000 after a strong up move in
CY18, indicating constructive
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improvement in price structure
• The RSC line oscillating in a range
– Retail
indicates a breather in relative
outperformance
– Retail
• Going ahead, we expect the technology
space to outperform in upcoming month of
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volatility as we approach General Election
outcome
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• Technically, TCS, Tech Mahindra, HCL
Tech, FSL remain robust on the price
structure front
Source: Bloomberg, ICICI Direct Research
April 24, 2019 ICICI Securities Ltd. | Retail Equity Research 8Sectoral Indices – Relative to benchmarks
BSE Capital Goods – Monthly Chart BSE CG vs. Sensex – Relative Comparison BSE Capital goods Index
TECHNICAL SECTORAL
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• The index has maintained higher high-low
formation after bouncing from key long
MONTHLY MOMENTUM
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
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BSE Oil & Gas – Monthly Chart BSE Oil & Gas vs. Sensex – Relative Comparison BSE Oil & Gas Index
Index expected to form higher base
Relative ratio likely to bottom out
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above14000 and resume rally • The March-April rally has resulted in faster
retracement of the last falling segment
indicating a positive turnaround. We expect
– Retail
the index to hold above 14000 and
– Retail
eventually rally in coming months towards
16500-17000
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• The RSC line is placed at lower band of
rising channel, and is likely to see an
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outperformance in coming months aided by
positive price structure
• Structurally, gas distributors like MGL are
expected to do well
Source: Bloomberg, ICICI Direct Research
April 24, 2019 ICICI Securities Ltd. | Retail Equity Research 9Sectoral Indices – Relative to benchmarks
NSE FMCG– Monthly Chart NSE FMCG Index vs. Nifty – Relative Comparison NSE FMCG Index
TECHNICAL SECTORAL
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Elongated consolidation augurs
well for larger up trend • The index is undergoing a healthy
consolidation while stock specific
MONTHLY MOMENTUM
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
On relative terms, sector likely to perform Hindustan Unilever and Colgate Palmolive
are placed at support levels offering
at par with benchmark favourable risk-reward set up
• Among consumer discretionary space,
Havells, Voltas and Supreme Ind. are
looking structurally positive
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BSE Realty – Monthly Chart BSE Realty vs. Sensex – Relative Comparison BSE Realty Index
Equity
Falling channel breakout augurs well • The index took a breather after sharp rally
for structural up trend in March 2019, making market healthy
– Retail
• The RSC line is seen pointing higher after
– Retail
triple bottom indicating relative out
performance
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• Going ahead, we expect the real estate
space to extend its outperformance backed
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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
Source: Bloomberg, ICICI Direct Research
April 24, 2019 ICICI Securities Ltd. | Retail Equity Research 10Sectoral Indices – Relative to benchmarks
BSE Metal – Monthly Chart BSE Metal vs. Sensex– Relative Comparison BSE Metal Index
TECHNICAL SECTORAL
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Early signs of revival
• The Metal Index maintained higher high-
Relative underperformance to continue low on monthly scale amid stock specific
MONTHLY MOMENTUM
activity in April 2019
• The RSC line, however, continues to head
south, highlighting the relative
underperformance of the metals space
Higher low at • Going ahead, we expect the Metal Index
61.8% retracement 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
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NSE Pharma– Monthly Chart NSE Pharma Index vs. Nifty – Relative Comparison NSE Pharma Index
Equity
• The Pharma index bounced back from its
CY18 after forming triple bottom
– Retail
• The RSC line is still trending down
– Retail
indicating relative under performance of the
sector
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• Going ahead, we expect the pharma space
to see a decent pullback after base
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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
Source: Bloomberg, ICICI Direct Research
April 24, 2019 ICICI Securities Ltd. | Retail Equity Research 11Sectoral Indices – Relative to benchmarks
BSE Auto – Monthly Chart BSE Auto vs. Sensex – Relative Comparison BSE Auto Index
TECHNICAL SECTORAL
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• The index continues to form a lower high
low sequence indicating well defined down
MONTHLY MOMENTUM
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
Relative under performance to continue
• We expect Maruti Suzuki, Hero MotoCorp
to offer a favourable risk reward. They are
expected to see a pullback
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ICICI Securities – Retail
– Retail EquityResearch
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Source: Bloomberg, ICICI Direct Research
April 24, 2019 ICICI Securities Ltd. | Retail Equity Research 12Forthcoming Economic Event Calendar
TECHNICAL SECTORAL
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Date Event Date Event
US China
MONTHLY MOMENTUM
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
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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
Equity
10-May Industrial Production YoY 2-May Bank of England Bank Rate
– Retail
13-May CPI YoY 10-May Industrial Production YoY
– Retail
15-May Wholesale Prices YoY 22-May Retail Sales Ex Auto Fuel MoM
31-May GDP YoY 23-May CBI Retailing Reported Sales
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31-May Fiscal Deficit INR Crore 31-May GfK Consumer Confidence
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Source: Bloomberg, ICICI Direct Research
April 24, 2019 ICICI Securities Ltd. | Retail Equity ResearchNotes to RRG Charts......
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
TECHNICAL SECTORAL
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
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explained in the notes at the end of the report.
MONTHLY MOMENTUM
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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ICICI Securities – Retail
– Retail EquityResearch
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April 24, 2019 ICICI Securities Ltd. | Retail Equity Research 14MOMENTUM PICK
Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com
ICICI Securities – Retail Equity Research
ICICI Direct Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com
April 24, 2019 ICICI Securities Ltd. | Retail Equity Research 15Disclaimer
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
subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts are not registered as research analysts by FINRA and are not associated
persons of the ICICI Securities Inc. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee
of the companies mentioned in the report.
MOMENTUM PICK
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