What The Charts Are Saying About Indian Stock Market
A person looks at stock prices displayed in the trading gallery. (Photographer: Samsul Said/Bloomberg)

What The Charts Are Saying About Indian Stock Market

India’s equities ended lower for the third straight week as concerns over a weak economic outlook amid mounting Covid-19 cases in the country and fresh tension between the U.S. and China marred sentiment.

Through the week, the Nifty 50 Index recovered close to 370 points from its Monday’s low of 8,806.75. But the benchmark pared some of its gains to close at 9,039.25 on Friday after the Monetary Policy Committee cut repo rate by 40 basis points in a second emergency move, citing “severe” impact of the virus outbreak on the Indian economy.

What The Charts Are Saying About Indian Stock Market

“The Indian markets will open on Tuesday, and on opening, they will adjust to a global trade setup that will transpire on Monday. In any case, however, no significantly wild opening on the higher side is expected,” Milan Vaishnav, CMT, MSTA, technical analyst and founder of Gemstone Equity Research, said. “The coming week will see the levels of 9,162 and 9,235 acting as overhead resistance points. The supports will come in at 8,965 and 8,800 levels. Any move on the downside is likely to make the trading range wider than usual.”

According to Brijesh Bhatia, research head at Dealmoney Securities Pvt., there are clear signs of weakness at higher levels when observing the lower time frame charts of the Nifty. “The bulls managed to protect the 9,000-mark on the Nifty after falling briefly below that level on Friday. As we move into the truncated week, we believe the range of 8,800-9,372 will be critical. For the bulls, the upper level of the descending triangle and the 89-day exponential moving average act as a very strong resistance. It will be difficult to predict which way markets are headed until we see a decisive break on either side of the range.”

What The Charts Are Saying About Indian Stock Market

With the headline indices expected to remain range-bound, technical analysts remain focused on specific stocks and sectors going into the next week.

The Relative Rotation Graph, used to gauge relative strength of equities against a common benchmark and each other, suggests relative strength in select Nifty 50 and IT stocks.

ITC Ltd., Bajaj Auto Ltd., Tata Consultancy Services Ltd., HCL Technologies Ltd. and Cipla Ltd. are seen steadily building upon their relative momentum and are likely to outperform the headline index. “Cipla, which is placed the farthest from the centre point is likely to offer more alpha capturing opportunity,” Vaishnav said.

What The Charts Are Saying About Indian Stock Market

On the other hand, there could be further weakness in Kotak Mahindra Bank Ltd. and Titan Company Ltd. as they move from the weakening to the lagging quadrant. Besides, JSW Steel Ltd. and HDFC Ltd. are in the lagging quadrant and appear to be losing their relative momentum when compared against the Nifty 50 Index, Vaishnav said.

What The Charts Are Saying About Indian Stock Market

Reversal In Mid Caps?

Technical charts suggest that the underperformance of India’s mid-cap stocks may see a reversal after the worst selloff since the 2008 global financial crisis.

“The ratio of the Nifty Midcap Index divided by Nifty 50 Index shows that it has retraced 78.60 percent of the entire rally from the end of 2014 to January 2018,” Bhatia of Dealmoney Securities said. “On two separate occasions (2009 and 2013) in the past, we’ve seen such a massive underperformance of the mid-cap index versus the Nifty. On both of those occasions, however, the maximum retracement was 78.60 percent, after which there has been a trend reversal. The Relative Strength Index, too, is showing a positive divergence.”

What The Charts Are Saying About Indian Stock Market

Bhatia referred to the Fibonacci retracement levels—the horizontal lines that indicate where support and resistance are likely to occur in a particular security.

The Nifty Midcap100 Index has tumbled 40 percent since January 2018 compared to a 13 percent fall in Nifty 50 during the period.

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