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Research Analysts
Dharmesh Shah
Pabitro Mukherjee
Nitin Kunte, CMT
Vinayak Parmar
Ninad Tamhanekar, CMT
Technical Strategy
Getting ready to march post corrective blip…
May 2019
April 24, 2019
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Technical Outlook..
April 24, 2019 ICICI Securities Ltd. | Retail Equity Research 2Source: Bloomberg, ICICI Direct Research
Getting ready to march post corrective blip…
NSE Nifty Weekly Bar Chart
The Nifty scaled new lifetime highs (11856), on expected lines in
April 2019, followed by consolidation (11850–11550), which is a
normal phenomenon after 18.5% rally in the past six months.
Anxiety around General Elections has always triggered volatility in
the past. However, markets always steer clear of it once anxiety
settles down, irrespective of the outcome. During the past three
General Elections we observed, Nifty exhibits a robust performance
post the election phase, which makes us confident that volatility
owing to major event would present a good opportunity to build a
long term portfolio, as we do not foresee the Nifty going below its
key support base of 10900 around election outcome. Therefore,
investors should start accumulating quality midcap stocks in a
staggered manner.
Over the past 14 sessions Nifty Midcap retraced 78.6% retracement
of the preceding five session rally. A shallow price correction along
with elongated time consolidation form key ingredients of a healthy
corrective phase and reaffirms the overall bullish price structure.
Resistance @ 11856
Sectors likely to outperform on Relative Strength Model
Realty stocks witnessed a sharp improvement on relative score
while banking stocks consolidated along with the market while
maintaining its leadership role. We believe both these sectors will
continue their outperformance in relative terms.
The price structure of IT stocks remains positive. They are
resuming their fresh up move and are likely to outperform in
coming months.
Healthcare and capital goods stocks have seen an improvement
in price structure. We expect these stocks to perform in the next
leg of the up move.
After the recent consolidation, FMCG stocks are expected to
resume their up move. They are likely to perform at par with the
market.
Relative Rotation Graph: Cyclicals to outperform
Key support
threshold
@10900
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P
ote
nti
al R
etu
rns (
%)
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-5
-10
-15
-20
0
5
10
15
20
25
30
35
40
1 2 4 5
-------- Technical Ranking --------
3
Returns RankingReturns Ranking
Returns Ranking RankingReturns
Improving
Capital Goods,
Pharma
Outperformers
Banks, Realty, IT
Market Performers
Oil & Gas, FMCG,
Metals
Neutral
Auto
* Ranking improves from 1 to 5
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Election Year: Cyclicals to drive...
In two out of three occasions, the markets behaved indecisively five
months prior to elections. In contrast, throughout the past three
elections, both Nifty and Nifty 500 indices exhibited a robust
performance seven months post the election phase with average
returns of 27% and 33%, respectively
During all three election years, pharma & BFSI have remained
positive whereas auto, capital goods, construction and infra sectors
have relatively outperformed during an election year
During seven months post elections, all
sectors performed and clocked double
digit gains
April 24, 2019 ICICI Securities Ltd. | Retail Equity ResearchSource: Bloomberg, ICICI Direct Research
Among defensives, FMCG and pharma have
relatively outperformed five months prior to
elections. In contrast, consumer discretionary and
IT have outperformed seven months post elections
2
5 Months Pre -
Election
7 Months Post -
Election
5 Months Pre -
Election
7 Months Post -
Election
5 Months Pre -
Election
7 Months Post -
Election
Index Nifty -8 22 26 43 13 15
Index Nifty 500 -6 26 23 53 14 21
Cyclical Auto & Components -12 45 16 120 28 80
Cyclical BFSI 0 46 5 70 20 43
Cyclical Capital Goods -12 67 6 89 23 44
Cyclical Cement -2 67 10 69 33 53
Cyclical Construction and Infra -8 63 37 112 38 28
Cyclical Energy -11 36 52 58 22 14
Cyclical Metals -25 77 34 123 17 -1
Cyclical Power -14 52 37 45 13 16
Defensive Consumer discretionary -20 83 -5 106 20 36
Defensive FMCG -5 51 38 82 7 27
Defensive IT -27 55 9 119 8 34
Defensive Pharmaceuticals 1 39 28 89 11 31
SectorsSector's Nature
Sectoral Election Year Trend (Returns in %) Universe: Nifty 500
20142004 2009
Click here to go to top
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April 24, 2019 ICICI Securities Ltd. | Retail Equity Research
NSE (Nifty): 11576
11760
7894
o The outcome of the general election
2019 will have a significant bearing
on the future course of market
direction. Thus, volatility ahead of
key event cannot be ruled out.
However, we do not foresee the Nifty
sustaining below 10900 in this phase
o Historically, elevated volatility during
General Elections have always
offered a good entry opportunity for
investors. Hence, investors should
start building a long term portfolio by
accumulating quality midcap stocks
in a staggered manner
o Structurally, the current rally (18.5%)
off October 2018 low (10005) is
larger in magnitude compared to the
March-August 2018 rally (18.2%). A
rally getting bigger in magnitude
compared to preceding up moves is a
sign of strength and indicates the
firm grip of bulls in the present
scenario
o However, possibility of a temporary
breather cannot be ruled out to cool
off the overbought situation, aiding
the index to form a higher base on
the larger degree chart
Weekly RSI oscillator tilted downward amid sustaining above its nine period average, suggesting temporary breather
Nifty – Weekly Bar Chart
10005
10585
11171
9952
8968
Major support threshold at 11000 - 10900
as it is:-
78.6% retracement of 10585–11856 at
10858
52 weeks SMA at 10920
Upward sloping trend line 10820
10985
Technical Outlook
2Source: Bloomberg, ICICI Direct Research
18.2%18.5%
11856
Elongated up trend signifies firm grip of bulls, auguring well for next leg of up move
6826
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April 24, 2019 ICICI Securities Ltd. | Retail Equity Research
Shallow price retracement signifies inherent strength of broader market
48 Months SMA
o The Nifty Midcap has undergone a
secondary phase of consolidation after
last month’s sharp up move (9%) post
bouncing from its 14 month’s cycle
low around 16000
o The current consolidation phase is
seen as a healthy breather taken by
bulls to gather steam before their
northward journey
o In the process, over the past 14
sessions, the index has retraced 78.6%
of the preceding five session rally. A
shallow price correction along with
elongated time consolidation form the
key ingredients of a healthy corrective
phase and reaffirm the overall bullish
price structure
o We believe the current corrective fall
will find its feet around the 61.8%
Fibonacci retracement of February-
April rally (16045–18463), at 16970.
Overall, this consolidation would set
the stage for the next leg of the up
move
o Meanwhile, elevated volatility amid
General Election 2019 would offer
bargain buy opportunities. Hence, we
advise investors to focus on
accumulating quality midcap stocks
with improved earnings to ride the
next leg of the up move
Nifty Midcap 100 – Monthly Bar ChartTechnical Outlook
2Source: Bloomberg, ICICI Direct Research
14
Months
14
Months
14
Months
14
Months
Midcap 100 - Daily Bar Chart
Shallow retracement signifies
robust price structure
Retraced
78.6%
14 Days
5 Days
Monthly RSI oscillator hovering above its nine period average, suggesting positive bias
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April 24, 2019 ICICI Securities Ltd. | Retail Equity Research
Consolidation at lifetime high; augurs well for next leg of up move …
28388
o The Bank Nifty consolidated in a
range after a stupendous rally of
more than 13% during March 2019 as
concerns regarding higher crude oil
prices surfaced. Last month’s
consolidation in a broad range of
29500-30650 has helped the index in
forming a higher base for the next leg
of the up move
o We witnessed similar narrow range
consolidation during April 2014 ahead
of the General Election. However,
anxiety ahead of General Elections
have always offered a good buying
opportunity for investors
o Volatility is likely to increase as we
approach the outcome of the General
Election. However, despite volatility,
we expect the Bank Nifty to hold
above the major support area of
28600-28300. Any corrective decline
towards the same will provide a fresh
buying opportunity
o The Bank Nifty has reacted lower
twice from 30650 during April 2019,
which will continue to act as a hurdle
in the coming month
Weekly MACD inching upward, suggesting positive bias
Bank Nifty – Weekly Bar Chart
20575
27652
17606
24240
26617
Major long term support at 28300-28600 as it is:
50% retracement of (26617-30008)
The previous breakout area being the high
of Aug’18
Immediate hurdle
@ 30650
Technical Outlook
2Source: Bloomberg, ICICI Direct Research
23606
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April 24, 2019 ICICI Securities Ltd. | Retail Equity Research
Sectoral merry-go-round: Cyclicals to drive
o Realty stocks witnessed a sharp
improvement on relative score while
banking stocks consolidated along
with the market while maintaining
its leadership role. We believe both
these sectors will continue their
outperformance in relative terms
o The price structure of IT stocks
remains positive. They are resuming
a fresh up move. They are likely to
outperform in coming months
o Healthcare, capital goods stocks
have seen an improvement in price
structure. We expect these stocks
to perform in the next leg of up
move
o Oil & gas and metal stocks have
been consolidating after the recent
up move. They are likely to remain
market performers in coming month
o After recent consolidation, FMCG
stocks are expected to resume their
up move. They are likely to perform
at par with the market
o Auto stocks have witnessed relative
strength during last month as they
moved into improving quadrant.
However, the current up move is
seen as a pullback after sharp fall.
Auto stocks are likely to enter a
base formation in the coming month
Outlook
2Source: Bloomberg, ICICI Direct Research
Relative Rotation Graph – Month on Month
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April 24, 2019 ICICI Securities Ltd. | Retail Equity Research 8Source: Bloomberg, ICICI Direct Research
Sectoral Indices – Relative to benchmarks
Relative Strength Comparative: Evaluating the underlying strength
• The index has formed a higher base
around 14000 after a strong up move in
CY18, indicating constructive
improvement in price structure
• The RSC line oscillating in a range
indicates a breather in relative
outperformance
• Going ahead, we expect the technology
space to outperform in upcoming month of
volatility as we approach General Election
outcome
• Technically, TCS, Tech Mahindra, HCL
Tech, FSL remain robust on the price
structure front
• To closely gauge the underlying strength in the respective sectors vis-à-vis the benchmark, we analyse the Relative Strength Comparative (RSC) indicator. As the name suggests, it is a
comparative measure of strength vis-à-vis a benchmark or a sector
• While the RSC line is rising, the sector is outperforming the general market i.e. it is either rising faster than the benchmark in an up trending market or going down less, in a down
trending market or even rising. While the RSC line is falling, the sector is underperforming the broad equity market. If the market is going up, the sector is going up less or may be even
going down. If the market is going down when the RSC line is falling, the sector is going down more than the market. A flat RSC line indicates in line market performance going up or
down by the same magnitude
• The purpose of this exercise is to identify those sectors that are outperforming and avoid sectors that are underperforming
Structural up trend intact
NSE IT – Monthly Chart NSE IT Index vs. Nifty – Relative Comparison NSE IT Index
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April 24, 2019 ICICI Securities Ltd. | Retail Equity Research 9Source: Bloomberg, ICICI Direct Research
Sectoral Indices – Relative to benchmarks
• The index has maintained higher high-low
formation after bouncing from key long
term trend line support, indicating
resumption of up trend
• The RSC line, however, is languishing
below 0.50 levels where we may expect it
to bottom out and resume outperformance
in coming months
• Going ahead, we expect the capital goods
index to extend its rally towards 20000
• L&T, Kalpataru Power and KEC are looking
structurally positive on price charts
• The March-April rally has resulted in faster
retracement of the last falling segment
indicating a positive turnaround. We expect
the index to hold above 14000 and
eventually rally in coming months towards
16500-17000
• The RSC line is placed at lower band of
rising channel, and is likely to see an
outperformance in coming months aided by
positive price structure
• Structurally, gas distributors like MGL are
expected to do well
BSE Capital Goods – Monthly ChartBSE CG vs. Sensex – Relative Comparison BSE Capital goods Index
Index expected to form higher base
above14000 and resume rally
BSE Oil & Gas – Monthly Chart BSE Oil & Gas IndexBSE Oil & Gas vs. Sensex – Relative Comparison
Relative ratio likely to bottom out
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April 24, 2019 ICICI Securities Ltd. | Retail Equity Research 10Source: Bloomberg, ICICI Direct Research
Sectoral Indices – Relative to benchmarks
• The index is undergoing a healthy
consolidation while stock specific
performances are expected to continue
• In relative terms, we expect the sector to
perform in tandem with benchmark
• Structurally, ITC, Marico, Nestlé are
looking positive on price chart while
Hindustan Unilever and Colgate Palmolive
are placed at support levels offering
favourable risk-reward set up
• Among consumer discretionary space,
Havells, Voltas and Supreme Ind. are
looking structurally positive
• The index took a breather after sharp rally
in March 2019, making market healthy
• The RSC line is seen pointing higher after
triple bottom indicating relative out
performance
• Going ahead, we expect the real estate
space to extend its outperformance backed
by broad based participation and volatility
around election results would offer
incremental buying opportunity
• Oberoi Realty, Godrej Properties, Phoenix
Mills are looking structurally positive while
Brigade Enterprises and Sobha offers
favourable risk-reward set up
Elongated consolidation augurs
well for larger up trend
On relative terms, sector likely to perform
at par with benchmark
Falling channel breakout augurs well
for structural up trend
NSE FMCG– Monthly Chart NSE FMCG Index vs. Nifty – Relative Comparison NSE FMCG Index
BSE Realty – Monthly Chart BSE Realty vs. Sensex – Relative Comparison BSE Realty Index
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April 24, 2019 ICICI Securities Ltd. | Retail Equity Research 11Source: Bloomberg, ICICI Direct Research
Sectoral Indices – Relative to benchmarks
• The Metal Index maintained higher high-
low on monthly scale amid stock specific
activity in April 2019
• The RSC line, however, continues to head
south, highlighting the relative
underperformance of the metals space
• Going ahead, we expect the Metal Index
to form a base while the ferrous space is
expected to do well. However, in relative
terms, the sector is likely to continue its
underperformance
• We like Tata Steel and Jindal Steel &
Power from risk-reward perspective
• The Pharma index bounced back from its
CY18 after forming triple bottom
• The RSC line is still trending down
indicating relative under performance of the
sector
• Going ahead, we expect the pharma space
to see a decent pullback after base
formation over the past six months. We
expect the index to head towards 10000
• Stocks like Glenmark Pharma, Lupin, Suven
Lifescience, Hikal remain structurally
positive
Early signs of revival
Higher low at
61.8% retracement
BSE Metal – Monthly Chart BSE Metal vs. Sensex– Relative Comparison BSE Metal Index
NSE Pharma– Monthly Chart NSE Pharma Index vs. Nifty – Relative Comparison NSE Pharma Index
Relative underperformance to continue
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April 24, 2019 ICICI Securities Ltd. | Retail Equity Research 12Source: Bloomberg, ICICI Direct Research
Sectoral Indices – Relative to benchmarks
• The index continues to form a lower high
low sequence indicating well defined down
trend. The RSC line remains in a sharp
down trend highlighting relative
underperformance
• The index has corrected 50% from its highs
over the past year, which has rendered
prices to the oversold trajectory. With a
weak price structure and oversold
readings, we expect the sector to trade in
a range and relatively under perform
• We expect Maruti Suzuki, Hero MotoCorp
to offer a favourable risk reward. They are
expected to see a pullback
BSE Auto – Monthly Chart BSE Auto vs. Sensex – Relative Comparison BSE Auto Index
Relative under performance to continue
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Forthcoming Economic Event Calendar
April 24, 2019 ICICI Securities Ltd. | Retail Equity ResearchSource: Bloomberg, ICICI Direct Research
Date Event Date Event
US China
1-May FOMC Rate Decision (Upper Bound) 2-May Caixin China PMI Mfg
1-May FOMC Rate Decision (Lower Bound) 6-May Caixin China PMI Composite
9-May Initial Jobless Claims 10-May New Yuan Loans CNY
9-May Continuing Claims 15-May Retail Sales YoY
10-May CPI MoM/YoY 16-May New Home Prices MoM
15-May Industrial Production MoM 16-May Industrial Production YTD YoY
21-May Existing Home Sales MoM 20-May FX Net Settlement - Clients CNY
30-May GDP Annualized QoQ 27-May Industrial Profits YoY
31-May PCE Deflator MoM 30-May Swift Global Payments CNY
31-May U. of Mich. Sentiment 31-May Manufacturing PMI
India UK
2-May Nikkei India PMI Mfg 1-May Markit UK PMI Manufacturing SA
6-May Nikkei India PMI Services 2-May Markit/CIPS UK Construction PMI
10-May Industrial Production YoY 2-May Bank of England Bank Rate
13-May CPI YoY 10-May Industrial Production YoY
15-May Wholesale Prices YoY 22-May Retail Sales Ex Auto Fuel MoM
31-May GDP YoY 23-May CBI Retailing Reported Sales
31-May Fiscal Deficit INR Crore 31-May GfK Consumer Confidence
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Notes to RRG Charts......
April 24, 2019 ICICI Securities Ltd. | Retail Equity Research 14
In this section, we focus on the relative performance of the BSE sectoral indices. The adjacent scatter chart highlights the relative performance of various sectors of the BSE relative to the
Sensex with the y-axis plotting the relative price momentum and the x-axis plotting the relative price. The chart is then subdivided into four quadrants. The details of each quadrants has been
explained in the notes at the end of the report.
Leadership quadrant: Top right is “Leadership” quadrant, which represents a sector that has strengthened in relative price and momentum vis-à-vis the Sensex.
Weakening quadrant: Bottom right is the “Weakening” quadrant where the relative price of a sector has started to deteriorate and momentum has started to slow.
Lagging quadrant: Bottom left is the “Lagging” quadrant where the relative price of a sector has become negative with momentum suggesting underperformance vis-à-vis the benchmark.
Improving quadrant: Top left is the “Improving” quadrant where the relative price trend of the sector has started to rise with momentum.
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Pankaj Pandey Head – Research [email protected]
ICICI Direct Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
April 24, 2019 ICICI Securities Ltd. | Retail Equity Research 15
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We /I, Dharmesh Shah, Nitin Kunte, Ninad Tamhanekar, Pabitro Mukherjee, Vinayak Parmar Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the
subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts are not registered as research analysts by FINRA and are not associated
persons of the ICICI Securities Inc. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee
of the companies mentioned in the report.
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April 24, 2019 ICICI Securities Ltd. | Retail Equity Research 16
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