NIFTY Index Chart Analysis

Two more buoyant and impulsive weeks have ended with over 2 per cent gains in straight weeks. Nifty achieved a significant milestone, scaling a new lifetime high at 23,110.80. Three successive highs in three days is a strong indicator of the market’s positive sentiment and suggest a low probability of a change in the government. The market had already factored in the election outcome in the pre-election rally. Nifty’s surge after the Reserve Bank of India’s dividend announcement further elevated sentiments. The economists expected that the fiscal consolidation would improve.

Soon after the RBI’s dividend announcement, Nifty rallied 370 points on Thursday, one of the recent strong moves. As we look ahead, the immediate question is how much upside potential remains for Nifty. The immediate resistance is at 23,155, which coincides with the rising channel’s resistance. Nifty could reach this target before the exit polls. In fact, we were almost there on Monday. Nifty reacted from this strong resistance point. The exit poll data will be available on June 1 and 2.

The market will then have to respond to the exit polls on June 3, a crucial event, and the results on June 4, which could significantly influence market direction. In the bull case scenario, where the ruling BJP or the NDA surpasses the 2019 seats, which means 303 and 353, respectively, will be a positive sign for the market. The market will test the 22,300- 500 resistance zone in this scenario. If the slogan’s target of 400 seats is achieved, even for NDA, the market will see a knee-jerk reaction that can test anywhere in the zone of 23,500-900.v

This means the upside target is 3.9 - 4 per cent. But, in any case, if the results are not up to the expectation, or there is a decline in the number of seats, and even if the NDA forms the ruling government, the market will decline by at least 10 per cent sooner or later. This means Nifty will retrace 50 per cent of the current uptrend, which began in October 2023. In the most bear case scenario, Nifty may test the December 1, 2023 high of 20,291 and fill the huge gap. It is almost 61.8 per cent retracement level (20,437).

The market reacts impulsively during major event risks like general elections results day. However, it’s important to remember the first principle of Charles Dow’s theory: the market (price) discounts everything. This means that all the information about a company, industry or external risk is already reflected in the stock price. As stated above, the market has already discounted the outcome.

The market has yet to undergo major correction after November 2022 - March 2023. Nifty declined by 10.90 per cent. After this, there was a minor correction of 6.72 per cent during September 2023 - October 2023. So expect a scenario of ‘buy on rumours, sell on news’. As mentioned earlier, any disappointment in any aspect of the government composition will affect the market sentiments. Even after the NDA government comes into place, the government, with an expected majority of the market, will witness profit booking and correct it after a week or 10 days. Any correction up to 10 per cent from the all-time high will open plenty of opportunities.

The target for Nifty 26,276 is intact and can be achieved in 18-24 months. Nifty is at a new lifetime high, above the prior pivot. It is also trading above all the key long-term moving averages. During the last week, on all trading days, it was able to close above the open and formed a bullish candle. The only concerns are the decline in volume and breadth, Friday’s shooting star kind of candle, and almost a bearish engulfing candle on Monday. The negative divergences still exist in RSI and MACD, which is also a cause for worry. Let us be cautious about the directional bias before the election outcome.

STOCK RECOMMENDATIONS

HBL POWER SYSTEMS LTD. .................. BUY .................... CMP ₹511.50
BSE Code : 517271
Target 1 .... ₹600
Target 2 ..... ₹675 
Stoploss....₹490 (CLS)

The company manufactures various types of batteries, e-mobility, and other products. It has three divisions: electronics, defence and batteries. The battery division manufactures industrial batteries for defence, telecom, UPS, railways, solar, oil and gas and power sectors. It also manufactures VRLA batteries for its data centre application. The electronic division has flagship products like the Train Collision Avoidance System (TCAS) and Train Management System (TMS). Its electric mobility vertical has developed an electric drive train kit for retrofitting light commercial vehicles and passenger buses. Technically, the stock has been consolidating for the past 16 weeks and has formed a symmetrical triangle. On Monday, as its earnings were above expectations, the stock recorded massive volume and tested the sloping trend-line resistance. It is above all the key moving averages and is trading 8.15 per cent above the 50 DMA and 31.23 per cent above the 200 DMA. The weekly MACD histogram shows a decline in bearish momentum. The RSI oscillates around the 60 zone. The Stochastic RSI has given a fresh, bullish signal. It closed above the Anchored VWAP resistance and is trading above the Ichimoku cloud. Its relative strength (RS) line is above the 21 weekly EMA. The Elder impulse system has formed a fresh bullish bar. It is also in the MAMA FAMA KAMA band. Institutional investors have increased their stake in the company by 70.68 per cent in the recent quarter. The funds invested in the company increased by 18.6 per cent, showing buying interest. Its EPS strength and price relative strength are at a greater level. It meets a majority of CANSLIM’s characteristics of investing. Buy this stock above the ₹530-540 zone. The medium-term target is ₹675. Maintain stop loss at ₹490.

DIVIS LABORATORIES LTD. ..................... BUY ................ CMP ₹4,389.90
BSE Code : 532488
Target 1 ..... ₹4,850
Target 2 .... ₹5,050 
Stoploss....₹3,760 (CLS)

The company is one of the largest manufacturers and suppliers of active pharmaceutical ingredients (APIs) and intermediates for global innovator companies, with a presence in over 100 countries. It is positioned as one of the two largest generic API manufacturers in the world for 10 out of 30 generic APIs it manufactures. It also offers custom synthesis (contract development and manufacturing organisation – CDMO) of APIs and nutraceutical ingredients with an overall product portfolio of over 160 products across cardiovascular, antiinflammatory, anti-cancer, and central nervous system (CNS) therapy areas. Technically, the stock closed above the prior pivot of the 20-week cup and handle. It also closed above the 50 per cent retracement level of the prior downtrend. It also broke the Stage 2 base. By forming a third higher low, it confirmed the uptrend and formed a series of higher highs. It is trading above all the key long-term averages. It is 12.94 per cent above the 50 DMA and 14.90 per cent above the 200 DMA. The weekly RSI shifted its range into the strong bullish zone. The relative strength (RS) is also above 21 EMA, which is a positive sign. The MACD shows improved bullish momentum. The KST and Stochastic RSI have given fresh bullish signals. In short, the stock has registered a bullish breakout. Good earnings, above estimates, may help the stock to move upside. Buy this stock in the ₹4,175-4,250 zone. The short-term target is at ₹4,850 and the medium-term target is the new high above ₹5,425. For a medium-term holding, the stop loss is ₹3,760.