Nifty to remain in 18,500-18,900 range; PSU banks likely to outperform: Pritesh Mehta, Yes Securities

For the time being, Nifty is likely to remain range bound between 18,500-18,900, said Pritesh Mehta, Lead Technical Analyst – Institutional Equities, Yes Securities. He also expects stock specific action in various sectors and segments. Edited excerpts:

Nifty50 ended with gains on a weekly basis, following a strong run up during the week, before Friday's hiatus. What were the key factors pushing the markets higher? What is your view for the index ahead?
Strength in select index biggies has been pushing the benchmark index higher. Our customized Top 10 Nifty index (comprising highly weighted Nifty constituents) has been moving higher since October, trading above 21-EMA.

Only a break below the same, would result in short-term reversal in our customized Top 10 index. Churn in leadership has also been among the major factors behind the recent rise. I can understand the arguments from the camp which states that the rally has been too selective, yet the point to observe here is that, we are not seeing other stocks marking big lows or resuming downtrend.

Churning action is expected to continue for the next few weeks. Upside count of Nifty as per P&F chart continues to be open around 19,300, yet we are likely to see range-bound action between 18,500-18,900 in the near term.

Nifty Bank was not much in action during the past week. Do you see the momentum getting over or is it just a pause before another leg of rally? What is your outlook?
At this juncture, I would prefer to differentiate between PSU and private banking space. As the ratio of Private banks against Nifty is slanting lower. Post a bearish anchor column at the top, formation of high pole pattern and move below 10-column average is seen.

So, we could see underperformance in the private banking space. The ratio of PSU banks vs Nifty continues to be in uptrend. Series of double top buys and bullish anchor follow through is seen in the ratio, which implies continuation of strength within this space. Bank of Baroda and SBI are likely to stage a rally of 8-10% from here.

What strategy should a trader consider for this month's expiry for Nifty50 and Nifty Bank? How can they maximise their returns and minimise the losses?
Post a sharp rally, we expect the index to consume time as focus is likely to shift towards broader markets. In such a range bound scenario for the month of December, short strangle for Nifty (monthly expiry) is recommended i.e. Selling OTM Nifty Call and Put options.

In this case, Sell Nifty 19,300 call near 49 Sell Nifty 18,300 put near 79. Combined premium is 128, Target 10, SL 185. Breakeven is 18,172-19,428.

What are your top stock picks for the traders in the short term? Please suggest target prices and stop losses?
Focusing on stocks beyond the index would provide better opportunities. Nifty Midcap 100 index is just whiskers away off its September peak. With the ratio of broader markets against Nifty improving, positive traction is expected to continue in this space.

Even our Tier-2 IT customized index has rebounded off a confluence of support. Coforge has given a base breakout post a consolidation phase of 6 months at the bottom. Bullish ABC breakout and anchor column follow through suggests an upside of 12% with SL of Rs 4,050.

Meanwhile, objective trendline breakout post a phase of consolidation on P&F chart, followed by a series of double top buys has resulted in a shift in orbit as per Gann parlance. Rally towards Rs 106 is expected with SL of Rs 85.

What is your take on midcap and smallcap indices which outperformed the benchmark indices last week. Do you see more steam left in them? What will be your top bets from this segment?
Nifty marked an all-time high last week, while both midcaps and smallcaps are yet to show such valor. However, seasonality study indicates that December is likely to be fruitful for the Nifty Midcap 100 index. In the last 15 years on 11 instances, this index has posted positive returns in December.

Moreover, average performance of the last 15 years shows returns of 3%+ in midcaps this month. Ratio of Midcaps vs NIfty has reversed the confluence of support zone, which implies possible catch-up move by midcap stocks. Within the pack, positive structure and outperformance is expected in AB Capital, Astral, Coforge, Dalmia Bharat, Indian Bank and L&TFH.

Real Estate stocks were in action during the last week. What is your outlook on the pack and how should investors trade in these companies? Do you have any recommendations?
Structure of Nifty Realty index has been improving since July 2022. Multiple positive patterns are seen in P&F chart (i.e. bullish turtle breakout, double top buy and currently it is attempting an objective trendline breakout.

Sustenance above the same would result in renewed momentum. Within the space, the ratio of DLF vs Realty index is endeavoring a breakout above Feb 2021 peak. Break above the same would result in leadership in DLF, potential rally of 12-15%.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)