Nifty in oversold territory, may stage technical pullback to 17100; Bank stocks could outperform

NSE Nifty 50 index has now entered oversold territory amid negative global developments and unscheduled rate hike announcement by RBI, but now a technical pullback could be on the cards, said analysts at ICICI Direct. “The past four week’s corrective phase hauled the weekly stochastic oscillator in extreme oversold territory, indicating an impending pullback,” ICICI Direct said. The brokerage firm earlier had a target of 18100 for Nifty 50. The index after hitting the same reversed lower tracking a host of negative global developments. ICICI Direct now expects the index to respect 15600 support levels and move higher in the coming months to touch 17100. 

Nifty to gradually head to 17100

“We expect the index to hold key support threshold of 15600 and gradually stage a pullback towards 17100 as it is 50% retracement of the entire decline since April 2022 (18115-15992) coincided with May 2022 high of 17132,” ICICI Direct noted. They highlighted that in the last two decades, on 16 out of 20 occasions despite transitory breach (not greater than 5%) of 52- week EMA, the index generated decent returns in subsequent three and six months. “In the current scenario, 5% from 200 DEMA will mature at 15700,” analysts added.

Analysts are advising that dips should be attributed to construct a portfolio by accumulating quality stocks in a staggered manner as they expect the Nifty 50 index to hold a key support threshold of 15600. 

Bank Nifty may hold 31500-3200 support

For Nifty Bank, ICICI Direct expects the index to hold above the key support threshold of 31500- 32000 and witness a gradual pullback towards 36300 level. “The past four week’s corrective phase hauled the weekly stochastic oscillator in oversold territory (at 18), indicating impending pullback. Thus, dips should be used to accumulate quality banking stocks in a staggered manner,” they added.

Global markets approaching price-wise maturity of correction 

Dow Jones and the NASDAQ index are down 14% and 28% in the current corrective phase, which has propelled ICICI Direct to expect both indices to stage a bounce from oversold territory. “Over the past two decades, in a secular bull market, barring two instances, average intermediate correction in Dow Jones, Nasdaq indices have been around 15% and 25%, respectively. Buying in such corrections have provided decent returns to investors from a medium-term perspective,” ICICI Direct said. 

Historical data also shows that in the last 3 cycles of Fed rate hike, despite the initial knee jerk reaction post interest rate hike US markets have rallied over the medium-term. During the same phase, Indian equities remained in a positive trend in tandem with the US markets.

Sectors to watch

ICICI Direct is expecting bank stocks to outperform along with PSU Stocks. “PSU index has seen improvement in both momentum and relative term, we expect the PSU stocks to continue with their relative outperformance,” they said. IT stocks have corrected and are now placed near support levels, hinting at a favourable risk-reward setup. Pharma stocks are likely to underperform.

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