Stock to buy or sell: Dharmesh Shah of ICICI Securities recommends buying L&T tomorrow, November 18

Stock Market News: The domestic benchmark indices, Nifty 50 and Sensex, slightly declined on Thursday, marking their sixth weekly loss in seven weeks. Concerns about a slowdown in consumption compounded worries about moderating earnings and foreign capital outflows.

The Nifty 50 dropped by 0.11% to 23,532.7, closing below its 200-day moving average for the first time since April 2023. The Sensex decreased by 0.14% to finish at 77,580.31. Both indices experienced a weekly loss of approximately 2.5%. The market was closed on Friday, November 15, in observance of Guru Nanak Jayanti.

The Head of Research at Geojit Financial Services, Vinod Nairpointed out that investors are quickly moving to close their positions in riskier assets, as the persistence of premium valuations without adequate earnings growth is unlikely to last. The lacklustre results from H1FY25 have heightened the possibility of additional downgrades in the FY25 Nifty 50 estimates.

“We anticipate a 2 to 3% downward adjustmentin the Nifty 50 estimates for FY25. Despite the challenges faced in H1FY25, investors are optimistic about H2FY25 earnings due to expected increases in government spending, favourable monsoon conditions, and a rebound in rural demand,” added Nair.

The Indian stock market will be closed on Wednesday, November 20, due to the Maharashtra Assembly elections. According to market analysts, the election results and significant global economic metrics—including US bond yields, the performance of the dollar index, US unemployment claims, preliminary manufacturing and services PMI data, and inflation figures from Japan—will play a crucial role in influencing market trends.

Market Outlook by Dharmesh Shah, Vice President, ICICI Securities

Nifty 50 extended losses and settled 2.5% lower for the week at 23532 as FII’s selling continued amid rise in US Dollar index and bond yields that weighed on market sentiment. Broader market relatively underperformed as Nifty midcap, small cap closed 4% lower. The, weekly price action formed a bear candle carrying lower high-low, indicating extended correction amid elevated volatility.

In the upcoming truncated week, we believe, amidst ongoing volatility supportive efforts can be seen around key support zone of 23,200-22,900 as it is 52 weeks EMA coincided with election outcome day high. Meanwhile, for a meaningful pullback to materialise, index need to decisively close above previous sessions high which has not been the case in recent past.

On the structural front, all Major indices including Nifty 50, Bank Nifty, Midcap, Small Cap have approached their 200 days EMA amid oversold conditions. Over past two years, on multiple occasions, mean reversion towards 200 days EMA resulted into technical pullback.

The breadth indicator (% of stocks above 50 days SMA of Nifty 500 Universe) has approached bearish extreme level of 12 during the week. Since covid lows, such an extreme reading leads to short term reversal.

On the global marco front, pullbacks in Brent prices were short lived amid slowdown in demand and possible rise in production. A decisive close below 69 would result into extended correction towards 65 mark going ahead.

Sectorally, IT, pharma, BSFI expected to relatively perform better. However, Infrastructure space appears to be oversold technically and poised for a bounce back.

Structurally, since covid lows, average intermediate bull market corrections have been to the tune of 10% in Nifty 50 and 9% in Bank Nifty. With 10% correction in Nifty 50 and 8% correction Bank Nifty is already in place with positive divergence in Bank Nifty, we believe price wise correction remains limited however, index can undergo time wise correction with key support in the range of 23,200-22,900 as it is confluence of:

A) 61.8% retracement of Jun-Sept rally (21,281-26,277), placed at 23,200
B) Long term rising trend line that has been held over past 2 years
C) 52 weeks EMA is placed at 23,146

On the Bank Nifty front, index has settled at the lower band of past six weeks consolidation 52,600-50,200 that coincided with 200 days EMA. The ratio chart of Bank Nifty/ Nifty 50 has taken a breather after recent up move. However, the positive divergence on daily RSI indicator, suggest impending pullback that makes us believe that Bank Nifty would gradually resolve towards upper band of consolidation (placed at 52,600).

Meanwhile, key support is placed at 49,300 as it is 52 weeks EMA coincided with 61.8% retracement of Jun-Sept rally (46,077-54,467).

Stock To Buy This Week – Dharmesh Shah

Buy Larsen & Toubro in the range of 3,530-3,630 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 14/11/2024 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.