Top Stock Recommendations: Dharmesh Shah of ICICI Securities suggests buying RIL, and NTPC tomorrow

Stock Market News: Friday’s intraday trading saw the domestic benchmark indices, the Sensex and Nifty 50, reach record highs before ending slightly down as a result of profit-booking in the IT, FMCG, and healthcare sectors.

Though the markets were supported by fresh inflows of foreign cash and steady prices of crude oil on international exchanges, traders noted that the dismal trend in global stocks weighed on the sentiments.

For the second day in a row, markets were surging ahead of the Lok Sabha election results on June 4.

The Sensex hit a new all-time high of 75,636.50 during the session, but it was unable to hold onto its gains and finished the day 8 points lower at 75,410.39. During the session, the Nifty 50 hit a new all-time high of 23,026.40, but it ended the day 11 points lower at 22,957.10.

Vinod Nair, Head of Research at Geojit Financial Services, said that despite the recent US FOMC minutes suggesting a sustained hawkish stance on policy rates, sentiments in the global market remained muted.

The US unemployment claims declined more than anticipated, business earnings held steady, and inflation remained obstinate, thus the Fed had no justification to lower interest rates.

Large caps are taking a backseat to the overall market rise as the domestic market achieves new highs, suggesting that the short-term momentum will continue. PSU banks and defense stocks have led to outstanding performance and increased visibility, resulting in a considerable rerating of the BSE PSU index, according to Nair.

Market Outlook by Dharmesh Shah, Vice President, ICICI Securities

On expected lines, index resolved higher and surpassed the milestone of 22,800. Consequently, Nifty 50 logged a new life high of 23,026. The weekly price action formed a sizable bull candle carrying higher high-low, indicating acceleration of upward momentum on the breach of March high of 22,794. In the process, Nifty midcap index continued to inch northward and endured its record setting spree over sixth consecutive session.

Going ahead, we reiterate our positive stance expect Nifty 50 to head toward our earmarked target of 23,400 in coming weeks. Key point to highlight is that, The Nifty 50 has recorded breakout from three months consolidation backed by faster retracement as it entirely retraced past nine weeks consolidation (22,800-21,700) in just two weeks. The faster pace of retracement exhibits robust price structure that bodes well for extension of ongoing up move. In the process, we expect volatility to remain high as we approach the fag end of the General election phases coupled with Q4 earning season. We believe, focus should be on big picture, as we are in structural uptrend.

The anxiety will subside post event and markets will follow its structural up trend. Retracement of rally would thus provide a buying opportunity and therefore investors should focus on building portfolios and ride the uptrend as immediate support is placed at 22400. Our positive stance is corroborated by following observations:

A) In sync with the historical evidences, Nifty 50 staged a strong rebound post ~5% correction and clocked a new high, highlighting inherent strength. Empirically, index has corrected ~6% during polling phase of past four elections and eventually hit new highs around election outcome on three occasions.

B) The multi sector participation backed by improving market breadth (amongst Nifty 500 universe, 77% stocks are trading above 200 days EMA), highlighting improving market breadth.

C) Robust price structure of global markets and lower brent prices are expected to act as tailwind going forward.

Structurally, formation of higher peak and trough makes us confident to revise support base upward at 22,400 as it is confluence of 20 days EMA coincided with 50% retracement of current up move (21,821-23,026) and last week’s low of 22,404.

Top Stock Recommendations:

Buy Reliance Industries Ltd (RIL) in the range of ₹2,900-2,965 for the target of ₹3,270 with a stop loss of ₹2,765.

Buy NTPC in the range of ₹366-376 for the target of ₹408 with a stop loss of ₹346.

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.