N※N

Chartist Talks: Accumulate largecap IT stocks, Nifty may cool off more before getting upward toward 25,000, says ICICI Securities'' Dharmesh Shah

Chartist Talks: Accumulate Largecap IT Stocks as Nifty Eyes Potential Cool-Off Before Rally to 25,000, Says ICICI Securities' Dharmesh Shah

In the ever-volatile world of Indian equities, market participants are constantly seeking insights from technical analysts to navigate the ups and downs. One such voice is Dharmesh Shah, Head of Technical Research at ICICI Securities, who recently shared his perspectives on the current market landscape. Shah's analysis, grounded in chart patterns, historical trends, and key indicators, suggests a nuanced outlook for the benchmark Nifty index and specific sectors. According to him, while the Nifty might experience further cooling in the near term, it could eventually pave the way for an upward trajectory toward the 25,000 mark. Amid this, he recommends accumulating largecap IT stocks, viewing them as a resilient bet in a potentially choppy environment.

Shah's commentary comes at a time when the Indian stock market has been grappling with a mix of global and domestic factors. The Nifty, which has seen impressive gains over the past year, is now facing headwinds from elevated valuations, geopolitical tensions, and fluctuating foreign institutional investor (FII) flows. Despite these challenges, Shah remains optimistic about the medium-term prospects, emphasizing that any short-term pullback could present buying opportunities for discerning investors.

Delving into the technicals, Shah points out that the Nifty has been trading in a broad consolidation phase after hitting all-time highs. He observes that the index has formed a pattern resembling a "higher top-higher bottom" structure on the weekly charts, which is indicative of underlying bullish momentum. However, he cautions that the recent rally has led to overbought conditions, as evidenced by the Relative Strength Index (RSI) hovering above 70 on daily charts. This overbought scenario often precedes a healthy correction, allowing the market to digest gains and build a stronger base for the next leg up.

Shah predicts that the Nifty could cool off further, potentially testing support levels around 24,000 to 23,800 in the coming weeks. He attributes this to seasonal factors, such as the typical weakness seen in September and October, combined with profit-booking pressures. "Markets don't move in straight lines," Shah notes, highlighting historical precedents where similar setups led to 5-7% corrections before resumption of the uptrend. For instance, he draws parallels to the post-COVID rally phases, where intermittent pullbacks strengthened the overall bull market narrative.

Despite the anticipated dip, Shah is bullish on the Nifty's path to 25,000, projecting this milestone could be achieved by the end of the fiscal year or early next. He bases this on several supportive factors: robust domestic liquidity, with mutual fund inflows remaining strong; improving corporate earnings, particularly in sectors like banking and consumer goods; and a favorable macroeconomic backdrop, including controlled inflation and steady GDP growth projections. Moreover, he points to the Nifty's positioning above key moving averages, such as the 50-day and 200-day EMAs, as a sign of sustained uptrend integrity.

Turning to sector-specific recommendations, Shah is particularly enthusiastic about largecap IT stocks. He advises investors to accumulate names like Infosys, TCS, HCL Technologies, and Wipro during any market weakness. The rationale? The IT sector has underperformed relative to the broader market in recent months due to concerns over global slowdowns and margin pressures from wage hikes. However, Shah sees this as a temporary phase. "Largecap IT companies are sitting on strong order books and are benefiting from the digital transformation wave," he explains. With the US economy showing resilience and potential rate cuts by the Federal Reserve on the horizon, IT services demand is expected to rebound.

Shah elaborates on the technical setup for IT stocks, noting that many have formed basing patterns near their long-term support zones. For example, Infosys has been consolidating around the 1,700-1,800 range, which coincides with its 200-day moving average, a level that has historically acted as a springboard for rallies. Similarly, TCS exhibits a bullish divergence on the MACD indicator, suggesting accumulation by smart money. He projects that a breakout above key resistance levels could lead to 15-20% upside in these stocks over the next six to nine months.

Beyond IT, Shah touches on other sectors worth monitoring. He is cautious on midcap and smallcap spaces, warning that their recent outperformance might give way to underperformance during a Nifty correction, given their higher beta nature. Instead, he favors defensive plays like pharmaceuticals and FMCG for stability. In banking, while PSU banks have been strong performers, he prefers private lenders such as HDFC Bank and ICICI Bank for their superior asset quality and growth prospects.

Risk management is a cornerstone of Shah's advice. He stresses the importance of stop-losses, recommending that investors protect positions below critical support levels to mitigate downside risks. For the Nifty, a breach below 23,500 could signal deeper corrections, potentially toward 23,000, though he views this as unlikely in the current setup. Diversification across sectors and maintaining a balanced portfolio are also key, especially in light of global uncertainties like US elections and commodity price fluctuations.

Shah's outlook aligns with broader market sentiments, where analysts are increasingly focusing on quality over quantity. The emphasis on largecaps stems from their liquidity advantages and lower volatility compared to smaller peers. As FIIs remain net sellers in the cash market, domestic institutional investors (DIIs) have been the backbone, absorbing selling pressure and supporting indices.

In terms of broader economic context, Shah notes the positive impact of government initiatives like the Production Linked Incentive (PLI) scheme, which could bolster manufacturing and related sectors. He also highlights the role of infrastructure spending in driving economic momentum, potentially benefiting construction and capital goods stocks in the long run.

For retail investors, Shah's message is one of patience and opportunism. "Corrections are part and parcel of bull markets," he says, urging against panic selling. Instead, use dips to build positions in fundamentally sound stocks. He recommends a staggered buying approach, allocating funds in tranches as the market tests lower levels.

Looking ahead, Shah anticipates that the upcoming earnings season will be pivotal. Strong results from IT and banking could accelerate the Nifty's climb, while any disappointments might prolong the cool-off phase. Globally, he keeps an eye on crude oil prices, which, if they stabilize below $80 per barrel, could ease inflationary pressures in India.

In summary, Dharmesh Shah's analysis paints a picture of cautious optimism for the Indian markets. With the Nifty potentially facing more downside before aiming for 25,000, the focus shifts to selective accumulation, particularly in largecap IT stocks. This strategy, backed by technical indicators and fundamental strengths, positions investors to capitalize on the next bullish wave. As always, staying informed and adaptable remains crucial in the dynamic arena of stock trading. (Word count: 1,028)

Read the Full moneycontrol.com Article at:
[ https://www.moneycontrol.com/news/business/markets/chartist-talks-accumulate-largecap-it-stocks-nifty-may-cool-off-more-before-getting-upward-toward-25-000-says-icici-securities-dharmesh-shah-13005487.html ]