Stock to buy or sell: Dharmesh Shah of ICICI Securities recommends buying L&T tomorrow

Stock Market News: The domestic benchmark indices, Nifty 50 and Sensex, declined on Friday, concluding the week in negative territory, as worries over lackluster corporate earnings and ongoing foreign fund outflows overshadowed the gains made in information technology (IT) shares after the US Federal Reserve’s anticipated interest rate reduction.

The Nifty 50 decreased by 0.21% to 24,148.2, whereas the Sensex fell by 0.07% to 79,486.32. This week, they experienced losses of 0.64% and 0.3%, respectively, indicating their fifth decline in six weeks.

Vinod Nair, Head of Research at Geojit Financial Services, pointed out that the Indian market is undergoing consolidation as Foreign Institutional Investors (FIIs) have been exerting substantial selling pressure due to worries about weak corporate earnings and high valuations. This widespread correction is especially noticeable in sectors that are perceived to be overvalued. Furthermore, the expected slowdown in domestic Q2 GDP growth has further weakened market sentiment.

In the week ahead, essential economic indicators to monitor include the Index of Industrial Production (IIP) and inflation rates. The consensus predicts a rise in inflation in the near term alongside growth in the IIP. The market will remain affected by Q2 earnings results, Trumponomic strategies, and the actions taken by FIIs. In the near to medium term, the US market is anticipated to outperform other markets.

Market Outlook by Dharmesh Shah, Vice President, ICICI Securities

Equity benchmark concluded eventful week on a subdued note at 24,148, down 0.8%. Meanwhile, US market jumped 4% during the week and recorded new highs as US election outcome boosted the market sentiment. Sectorally, IT and PSU banks relatively outperformed while realty and oil & gas extended losses. The, weekly price action formed a small bear candle with long shadows on either side, indicating extended correction amid elevated volatility.

The lack of follow through strength above past two weeks high of 24,500 signifies prolongation of consolidation in the broader range of 23,800-24,500 while settling down election-based volatility. Key point to highlight is that, the index has approached oversold condition after 9% correction, indicating impending pullback. Meanwhile, revived traction in BFSI along with IT space would pave the way for Nifty 50 to resolve above the immediate hurdle of 24,500 that would confirm the pause in downward momentum and open the door for meaningful pullback towards 24,900 in coming weeks. In the process, stock specific activity would continue as Q2 earnings approaching fag end of the season.

Structurally, we believe index is undergoing healthy correction which would eventually set the stage for next leg of up move. Since covid lows, average intermediate corrections have been to the tune of 8-10%. With 9% correction already in place amid oversold conditions we believe, downside remains limited with key support in the range of 23,700-23,500. Hence, accumulating quality stocks in a staggered manner to build the portfolio from medium term perspective would be the fruitful strategy to adopt.

On the market breadth perspective, after 9% correction many large caps stocks have approached near their key support zone amid oversold conditions. In addition to that, the breadth indicator has bounced from bearish extreme as currently 24% stocks of Nifty 500 Universe are trading above their 50 Days moving average compared to reading of 12 in October, indicating impending pullback.

We believe strong support for the Nifty 50 is placed in the range of 23,700-23,500 zone as it is confluence of:

A) 50% retracement of Jun-Sept rally (21,281-26,277), placed at 23,800.

B) Price parity of election outcome decline of 9% projected from September high of 26,277.

C) 200 days EMA is placed at 23,532.

On the Bank Nifty front, index has been forming a higher base above 100 days EMA that coincided with key long-term moving average that has been held over past 2 years. The upward inching ratio chart of Bank Nifty/ Nifty 50 exhibits relative outperformance that makes us believe that Bank Nifty would gradually resolve above upper band of consolidation (placed at 52,600) which would result into resumption of uptrend. Meanwhile, key support is placed at 50,200.

Stock To Buy This Week – Dharmesh Shah

Buy Larsen & Toubro in the range of 3,550-3,658 for the target of 4,060 with a stop loss of 3,340.

Disclaimer: The Research Analyst or his relatives or I-Sec do not have actual/beneficial ownership of 1% or more securities of the subject company, at the end of 08/11/2024 or have no other financial interest and do not have any material conflict of interest.

The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.