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Nifty headed for new highs!

ICICIdirect Research 18 Aug 2022 DISCLAIMER

What's Buzzing:

The strong rally measuring 18% after a steep fall, has kept many guessing if this is resumption of new bull trend or just another bear market rally? 

Context:

We maintain our positive stance and expect Nifty to surpass life highs of 18600 by end of CY22, while strong support is now placed at 16900 which we do not expect to breach.  

Our thesis is backed by following key observations: 

A)    Ongoing rally from June lows of 15200 is strongest in magnitude terms since October 2021 and in the process also led Nifty to surpass major downward trend line signalling end of 8-month corrective phase and resumption of primary uptrend.

B)    Since 2008, on six occasions index has formed durable bottom after percentage of stocks above 200 DMA (Nifty 500 universe) has touched the extreme low reading below 15, followed by new highs each time. We expect same rhythm to be maintained this time as the indicator bottomed at reading of 14 in June 2022.

C)    Nifty index has registered a bullish golden crossover (50-day EMA crossing 200-day EMA) at 17660 indicating, structural bullish development from medium term perspective. In last decade, in 8 out of 10 such instances, Nifty has generated average 11% return in subsequent 3-4 months.

Our Perspective: 

We are in a structural multiyear bull market and intermediate corrections makes larger trends healthier and should not be construed negative. We reiterate the stance on buying the dips as we expect journey towards life highs of 18600 will be led by BFSI, IT, Auto, Consumption and capital goods sectors. 

Our top picks are SBI, HDFC Bank, Bajaj Finance, Reliance Industries, Infosys, Tata Motors, Asian Paints, Titan, L&T, Tata Steel, Sun Pharma, Adani Ports

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