In Charts: What Technicals Are Saying About Indian Markets

“On a weekly basis, Nifty 50 index has closed above the highs of the last three weeks under the leadership of Bank Nifty, which gained 11.97% for the week. Further upside is clearly visible but we need to be stock specific until the market doesn't cross and sustain above 1,2450,” said Shrikant Chouhan, executive vice president, equity technical research at Kotak Securities. “On the downside, Nifty 50 index is expected to find support between 12,000 and 11,900 levels.”

According to Milan Vaishnav, CMT, MSTA, technical analyst and founder of Gemstone Equity Research, HDFC Bank Ltd., HDFC Asset Management Co., Hindustan Unilever Ltd. and Dabur India Ltd. could relatively outperform the Nifty 500 index.

“HDFC Bank has rotated into the leading quadrant; HDFC AMC and HUL to have rotated positively into the improving quadrant indicating a likely to end their relative underperformance,” he said. “Dabur is also placed firmly in the improving quadrant and seen moving steadily higher.”

On the other hand, Larsen & Toubro Ltd., Punjab National Bank, NMDC Ltd. and NTPC Ltd. could show relative underperformance against the broader markets. “L&T has rotated negatively and fallen back into the lagging quadrant following a sharp drop in its relative momentum. NMDC, PNB and NTPC continue languish lower in the lagging quadrant,” Vaishnav said.

Banks May Continue To Outperform

One of the major factors that have underpinned the Indian markets over the past few weeks has been gains in banking stocks, especially private banks. Since the start of October, Nifty has rallied 9%, while Bank Nifty has surged nearly 25%. That helped offset weakness in non-banking index heavyweights like Reliance industries, propelling Nifty 50 to within 200 points of its record high of 12,430.

Last week, the 12-member banking gauge recorded its best weekly gains since the start of April this year and could likely gain more, according to Abhishek Chinchalkar, CMT, Head of Education at Fyers.

He cited the Bank Nifty-to-Nifty 50 ratio to explain:

• In the first five months of 2020, the ratio plummeted from 2.65 to 1.90.

• Over the next five months, the ratio consolidated between 1.90 and 2.15.

• Finally, the recent rise from October’s low of 1.90 eventually took the ratio above 2.15, a barrier that held firmly since June.

Going by classical technicals, a Triple Bottom pattern unfolded since June and the neckline of 2.15 was broken in the week gone by, Chinchalkar told BloombergQuint.

“What this means is we can expect the ratio to head towards 2.40 or higher in the weeks ahead. Furthermore, the ratio has also just moved above the 200-day moving average resistance,” he said. “On the downside, the support for the ratio is now seen at 2.05. As long as that holds, the ratio looks well positioned to head higher in the days ahead.”

The recent rally in the Index has taken it above three major hurdles–200-week moving average, January and September 2019 lows and 61.8% retracement of this year’s price decline. This, according to Chinchalkar, opens up the levels of 29,082 in the coming weeks or months. “The RSI, too, is seen showing a strong momentum and has broken above its trendline connecting the March 2019, December 2019 and Aug 2020 highs. The index is now trading right near the resistance point of the rising channel, inside which the index has been moving since March 2020.”

If the index sustains above this resistance as well, it will be well positioned to extend its upside further, with immediate resistance then seen straight at the 0.786 fibonacci retracement of 29,082, he said. Chinchalkar sees supports at 25,890 followed by 25,670.