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Sensex, Nifty 50 end with over 1.2% gains.

Benchmark index Nifty 50 after hitting a lifetime high of 15,901.60 on June 15, 2021, is facing some downward pressure as market participants are booking profits at higher levels. At the same time, every sell-off in the markets is bought into as lockdown restrictions are lifted slowly and steadily. According to ICICI Direct research Nifty 50 is likely to maintain its northbound journey and gradually head towards the 16,200-16,400 range, led by IT, BFSI, auto and infra. “However, a move toward 16400 would not be in a linear manner as intermediate bouts of volatility owing to overbought conditions and Q1FY22 earnings, cannot be ruled out,” said ICICI Direct in a report.

Over the past year, one thing is clear that temporary volatility/consolidation has always offered incremental buying opportunity. The brokerage firm recommends investors sticking to quality stocks and, adhere to buying on declines, as it expects strong buying demand to emerge around 15,400-15,200.

Sectoral Outlook

ICICI Direct is of the opinion that the recent breather in Nifty Bank is approaching maturity and the index will resume its up move as the index has seen a higher base formation in the last three weeks around the major support area of 34000. Investors should use dips towards 34500-34000 to their advantage to accumulate quality large caps, midcap banking stocks.

“BSE IT index resolved out of four-month consolidation phase indicating resumption of the primary uptrend. TCS, Infosys, Mindtree, Sonata, are expected to outperform while L&T Infotech, Quess Corp, Matrimony, Accelya provide a favourable risk-reward setup,” the report noted.

BSE Metal index took a breather after a four-month rally led by profit booking at fresh lifetime highs led by profit booking. The brokerage firm believes that the sector outperformance to taper down while the overall outlook remains positive. JSW Steel, Tata Metaliks, Vardhman Speciality Steel outperform while Tata Steel, SAIL, NMDC, Graphite provides a favourable risk-reward setup.

“BSE Auto Auto index is attractively poised after the three-month breather and expected to resume uptrend in coming months. Auto OEM to extend their gains in coming months as most OEMs are currently placed at their key support level,” noted the report.

According to ICICI Direct BSE Realty index is placed at a breakout from the multiyear underperformance phase and provide an extremely favourable risk-reward setup. It is of the opinion that Ambuja Cement, Oberoi Realty, KNR Construction will outperform while Mahindra Logistics, Mahindra Life, India Cements provide a favourable risk-reward setup.

On the contrary, the brokerage house believes that the BSE Healthcare index is likely to undergo healthy consolidation after almost 30% gain in four months.

Broader markets

Just like the benchmark index even the Nifty Midcap 100 index to undergo healthy consolidation after the past four months 22% rally and gradually outperform the benchmark. “Since Since March 2020, the index maintained the rhythm of not correcting for more than 9%. That apart the index also shows a strong positive correlation with developed market peers has been maintained as global broader market indices forming a higher base around life-time high,” stated the report.

Likewise, even the Nifty Smallcap 100 form a higher base in the vicinity of all-time high levels after a 24% rally over the past three months. The healthy consolidation would set the stage for the next leg of the up move. “Faster pace of retracement indicates robust price structure. Also, price-wise the index has not exceeded intermediate correction for more than 10%, which have eventually offered incremental buying opportunity,” ICICI Direct said.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing)