As per 10-yr study, small- & mid-caps fared better than Nifty in Oct-Dec qtr: Pritesh Mehta

In an interview with ETMarkets, Pritesh Mehta, Lead Technical Analyst, Yes Securities, said: “Focusing on index won’t be the right approach for next few weeks. Look for opportunities beyond the index.” Edited excerpts:

A volatile week for Indian markets where benchmark indices faced hindrance near key resistance levels, but bulls remained firmly in control. What led to the price action last week?
Often after a sharp corrective move, the index tends to digest and consume time. Our P&F study shows a pullback off a 45-degree rising trendline and a double-top buy pattern, yet it is trading below the 10-column average.

In such set-ups, major moves are unlikely in the index. Yet, Nifty’s resilience is expected to continue against its global peers.

The gap between the US and India VIX has widened by a thick margin this year, conveying that the Indian equity market has relatively remained immune to the interest rate shocks in the US.

The decoupling can further reflect in the outperformance of the Nifty India vis-à-vis S&P 500, while the divergence in returns between the US and Indian sectors also adds more colour to the phenomenon.

After a 1% rally in the week gone by, where do you see Nifty heading in the coming week?
Despite previous Friday’s (September 30) big-sized green candles (in Nifty & BankNifty), it’s too early to conclude that bulls are out of the woods.

The current set-up shows the confluence of the hurdle near the 17,450-17,500 zone (i.e. point of polarity zone & midpoint of tall red bar seen on September 23).

So, in such a scenario, the index is likely to be stuck in a range with support seen around 16,800 accompanied by sharp whipsaws.

Our customised Nifty top 10 index has reversed off its midpoint zone. The continuation of the recent bullish swing in big boys (i.e. Reliance, L&T & ICICI Bank) will play a pivotal role now for Nifty’s sustenance above 16,800.

Small- & mid-cap stocks outperformed benchmark indices. Is it the festive cheer or short coverings?
One theme which has stood out for us is the strength of the Nifty Midcap 100 index. In the fall of September, it found support around the third line of defence as per Gann rule of 8, which coincides with the low of August.

The relative strength studies highlight the outperformance of mid-caps against Nifty. The ratio is trading above the December 2021 peak, which implies strength in the mid-caps space for the next few weeks.

Even our quarterly seasonality studies of the last 10 years show a success rate of 90%, wherein the last quarter of CY (October-December) has fared well for broader markets.

So, focusing on the index won’t be the right approach for the next few weeks. Look for opportunities beyond the index.

How are FIIs placed in the festive month? Do you think the worst is in the price?
Recently, FIIs have persisted with a bullish stance on consumption & financials (especially in August). In the recent past, FIIs remained net sellers on index futures. In the last couple of months, they largely trimmed index futures buy positions and added shorts.

Sectorally, metals and capital goods stocks led the gainers to pack among indices. What led to the price action?
Metals continue to be a highly volatile place and from September, the quantum of up moves has been short-lived. It held on to the August-low and bounced back, yet the ratio is still trading below its September-peak.

Throwback in DXY resulted in recovery, yet the high beta nature of this space makes it difficult to ride recovery moves.

The positive pattern in L&T, Siemens is likely to result in follow-through moves. So, action is expected to persist in this space.

The presence of the point of the polarity zone and the midpoint of the four-digit Gann number has led to a recovery in L&T, implying a continuation of momentum.

Any 3-4 trading ideas for the next month?
Here are some short-term trading ideas:

Federal Bank
Post a breakout in the last week of August and early September, the stock has been consolidating at the top despite a correction in the index.

It is continuously trading above the 10-column average and the presence of bullish three soldiers indicates further strength.

Sustenance above the three-digit Gann number of 121 would result in further upside, implying a rally of 16-18% in next few weeks.

Indian Hotels
Our customised Hotels & Restaurant index is on the cusp of a multi-month breakout, which is likely to trigger fresh momentum in the space.

Indian Hotels has been in a strong uptrend since July 2022. ABC breakout suggests a rally towards the Rs395-400 zone.

United Spirits
An objective trendline breakout is seen in this stock, bringing an end to three-month consolidation around the support zone. Follow-through moves are likely to play out with a projected upside towards the Rs1,000 zone.

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