NIFTY Index Chart Analysis

Rising inflation concerns and the World Bank’s cuts about India’s GDP growth forecast dented the market sentiment while the disappointing earnings by heavyweights like Infosys and HDFC Bank added fuel to fire, which resulted into intensified profit booking.The heavyweight stocks dragged the market. The benchmark index is down by 5.77 per cent from its April 4 top of 18,114.65. The IT index was down by 11.5 per cent over the last eight trading sessions. Except for April 8, the Nifty declined on other days in the last 10-days. Overall, the market breadth is negative. The India VIX closed flat. FIIs sold holdings to the tune ₹17,149.83 crore and the DIIs bought to the tune of ₹9,114.07 crore this month.[EasyDNNnews:PaidContentStart]

The benchmark indices slipped for four consecutive days. The Nifty has formed a sizable bearish candlestick on the weekly chart. Even in the fresh week starting from April 18, the benchmark index declined ferociously. With this, the previous week’s Doji candle got a confirmation of its bearish implications. As it has formed the most bearish candle with very tiny shadows, this is a bad omen for the market. By declining more than the 23.6 per cent retracement level of the prior upswing, Nifty also confirmed the downswing, and furthermore, it confirmed that the level of 18,114 was an intermediate swing high. The engulfing candle on April 13 on the back of 20 DMA support is another weaker signal for the market. 

The 50 DMA and the 200 DMA have been moving together in parallel formation for the past five days and finally the ‘death cross’ occurred on Monday. Nifty is currently holding three distribution days. Comparatively, the volumes declined below average for the last month, except for two to three days, and continue to decelerate. Any addition of another two distribution days along with a decline below 17,165 will drag the market towards another swing low. In many ways, the 17,145-183 zone is a crucial support for the market now. Below this, the index can eventually test the 16,600 level. The daily MACD has given a fresh sell signal during last week.

After two weeks of efforts, the MACD failed to get a bullish signal on the weekly chart. The monthly MACD is about to give the sell signal. The daily RSI closed below its 21 periods’ average and the monthly RSI declined from the overbought condition. There are no divergences currently visible. As mentioned several times in this column, the Dollar Index has an inverse relationship with equities. The Dollar Index (DXY) touched the 101 level on Tuesday, April 19, which is a big negative for equity markets worldwide. FIIs are withdrawing funds from the equity market because of the surge in the Dollar Index. At the same time, other asset classes like gold, crude oil and other commodities are also rising to new highs.

The interest rate cycle also bottomed out and it is expected that the central banks across the world will raise the policy rates to contain the rise in inflation in the next 3-4 quarters. These asset classes generally move against the equities. We need to watch these indicators over the next couple of weeks. In any case, of the DXY moves above the 104 level in the next few weeks, it’s a sign of caution. The other fundamental indicator, namely, price to book value (PBV), is at 4.63, reaching 12 years’ high. It indicates that the market has entered into the bubble territory fundamentally. The PE ratio is at the 22.92 level. Because the calculation method changed, the PE came down from the 40 level in the pandemic era, and we are not considering this as a factor for at least the next year.

Historically, the Indian stock market corrections are limited to 13 or 21 months. The current correction is in its sixth month. In the next seven months, we may see a 25 per cent correction from the October top of 18,604, which is almost equal to the 38.2 per cent or 40 per cent retracement level (14,000-14,367) of the uptrend from March lows. Nifty has already corrected nearly 8 per cent from its top. The market may witness stock and sector-specific activity as the earnings’ season is on. As the current decline has been sharper, we can expect a small technical pullback. These pullbacks will give fresh selling opportunities. Maintain the prior day’s high as a stop loss for the existing short positions. Avoid long positions unless base formation and a breakout happen.

STOCK RECOMMENDATIONS

GARDEN REACH SHIPBUILDERS & ENGINEERS LTD ................ BUY ........... CMP ₹ 286.15

BSE Code : 542011
Target 1 .... ₹ 335
Target 2 ..... ₹ 354
Stoploss....₹ 265 (CLS)

Garden Reach Shipbuilder and Engineers is a shipbuilding company under the Ministry of Defence. The company primarily adheres to the shipbuilding requirements of the Indian Navy and the Indian Coast Guard. It is also engaged in engineering and engine production activities. The engineering division manufactures deck machinery items, pre-fabricated portable steel bridges and marine pumps. Its shipbuilding division contributes a significant majority of its revenue from operations. GRSEL’s shipbuilding product line spans from technologically sophisticated frigates and corvettes to fast patrol vessels. The stock is trading at its new lifetime highs. It has broken out of a 21-week consolidation with a massive volume and is sustaining the breakout for the second week. Before this, it met the target of the two-year-long symmetrical triangle. The stock is trading above its key moving averages, around 26 per cent and 34 per cent from 50 DMA and 200 DMA. The stock is above the 30 weekly moving averages along with good relative strength. The MACD has given a fresh bullish signal above the zero line. The RSI is in a strong bullish zone. The +DMI is above the prior high and above the -DMI. An uptick in the ADX (16.93) is a sign of strengthening the trend. The TSI and KST indicators show bullish signals. It is also trading above the anchored VWAP. On the daily chart, the stock has been consolidating for the last three days after the breakout. Indicators suggest there is the highest probability of upside potential for the stock. The Government of India’s increased defence spending and new orders will be a positive for the company. Buy this stock with a stop loss of ₹ 265. The short-term target is placed at ₹ 335 followed by ₹ 354.

EID PARRY (INDIA) LIMITED ................ BUY ...................... CMP ₹ 492.00

BSE Code : 500125
Target 1 ..... ₹ 580
Target 2 .... ₹ 620
Stoploss....₹ 474 (CLS)

EID Parry (India) Limited is a part of the ₹ 369 billion Murugappa Group. It is engaged in the business of sugar and nutraceuticals. The company was founded in 1788 and the over 230-year-old company has the distinction of setting up India’s first sugar factory. It has nine sugar plants spread across South India. The highly specialised manufacturing plants of the nutraceuticals business for microalgal production are located at Oonaiyur and Saveripuram in Tamil Nadu. The company’s fully automated standalone distillery in Sivaganga, started in 2009, is the first of its kind in the country with zero emission, zero effluent and captive power generation capability. Technically, after breaking out of the 173-week cup pattern, it re-tested the breakout level and has been consolidating for the last 23 weeks. It is trading near to the prior pivot point. It is comfortably placed above its key moving averages, around 15 per cent and 15 per cent from 50 DMA and 200 DMA. The weekly MACD has given a bullish signal and the histogram shows a strong bullish momentum. In the 14 periods, RSI has entered into the strong bullish zone and is above its 20 periods’ average. The +DMI is above the -DMI and ADX. The KST indicator is about to give a buy signal, while TSI has already given a bullish signal. There is a high probability of breaking out of the consolidation. Buy this stock in the ₹ 510-525 range with a stop loss of ₹ 474. The short-term target is placed at ₹ 580 and the medium target is ₹ 620.

(Closing price as of Apr 19, 2022) 

*LEGEND: • EMA - Exponential Moving Average.• MACD - Moving Average Convergence Divergence • RMI - Relative Momentum Index• ROC - Rate of Change •RSI - Relative Strength Index

Disclaimer : Above recommendations are based on various technical parameters and any fundamental input has not been considered for the recommendations. Follow strict stop loss for the recommendation.

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