F&O Talk | Bank Nifty could target 57,000 mark in medium term, overall market view is bullish: SBI Securities’ Sudeep Shah

Domestic stocks rose for a second straight day on Friday, boosted by positive global cues and a drop in US jobless claims. The Nifty rose 375 points (+1.5%) to hit record highs, with most sectors except PSU Banksending in green.

Real estate, metals, FMCG, private banks and financial services sectors led the gains. Analysts believe that strong inflows from foreign investors, healthy domestic macroeconomics and easing concerns over the US economy are expected to sustain the positive momentum.

Analyst Sudeep ShahDeputy Vice President and Head of Technical and Derivatives Research, SBI Securities He interacted with ET Markets regarding the outlook on Nifty and Nifty Bank After the Fed rate cut. Below are edited excerpts from their talk:

How does a 50 basis point Fed rate cut typically affect stock markets? Does it have long-term effects or has the impact already passed?

The Federal Reserve took an aggressive approach at its latest monetary policy meeting, cutting interest rates by 0.5% to a range of 4.75-5%. This marks the first rate cut since March 2020. As a result, central banks around the world are expected to follow suit. In the last two decades, the Fed had gone ahead with a 50 basis point rate cut on 2 occasions in 2001 and 2007 when it was grappling with the economic crisis and the Nifty had thrived on both occasions. Equity markets have reacted positively, with major indices including ours hitting new all-time highs. Historically, rate cut cycles are seen as favourable for riskier assets including emerging market equities as they generally lead to higher foreign institutional investment (FII) inflows, which also implies an incremental boost in large-cap companies relative to mid- and small-caps.

With Nifty hitting new all-time high on Friday, what are the next levels to watch?

Boosted by positive global sentiment, our benchmark index Nifty closed the week at a record high. The bullish momentum gained strength mid-week, particularly on Wednesday evening after Federal Reserve Chairman Jerome Powell announced a 50 basis point interest rate cut for the first time in four years. This decision boosted optimism in global markets, easing concerns over economic growth and boosting investor confidence.

Our market view remains bullish considering the current structure of the weekly and daily charts. At the same time, we would say that it will be a stock-picking market. So, don’t get too guided by intraday action. Look at the bigger picture. And more importantly, follow the concept of Dow theory which says that if an index or a stock is making higher and higher highs and lows, hold on to it regardless of any alarming news flow. That’s because price action is the best testimony of a trend!

Level-wise, the Nifty is likely to test the 26100 level, followed by 26350 in the near term. While on the downside, the support zone has shifted upwards to the 25500-25450 zone in the near term.

Before and after the rate cuts, the Nifty banking index has performed very well. Do you think now is the time to witness a rally in the index in the September series? And any levels?

The banking benchmark, Bank Nifty, stole the limelight last week, outperforming the broader indices and hitting a new all-time high post-July 2024. It closed at the 53800 level, posting an impressive gain of 3.57 percent. Even more excitingly, Bank Nifty gave a breakout of the cup pattern on the weekly chart, a classic bullish signal, hinting at the potential for further upside in the coming sessions. The height of the cup pattern is nearly 7 percent and the width of the pattern is 11 weeks. As per the cup pattern measurement rule, the bullish target is placed at the 57000 level in the medium term. While on the downside, the 53000-52900 zone will act as an immediate support for the index.

Which banks are you optimistic about?

HDFCBANK: It has given a breakout of the descending trend line on a daily scale. Thereafter, it has started moving higher along with solid volume. We believe that it is likely to continue its upward journey and test the 1800 level, followed by 1850 in the near term.

ICICIBANK: It has given a breakout of the cup pattern on a weekly scale. This breakout is confirmed by a higher 50-day average volume. The daily and weekly RSI are in a super bullish zone. Therefore, we believe that it is likely to continue its upward journey and test the 1370 level, followed by 1400 in the near term.

Are there interest rate-sensitive sectors that deserve attention?

Following the Federal Reserve’s monetary policy announcement, expectations of a rate cut by the RBI increased.

This could broadly benefit banks, insurance companies, NBFCs and other financial firms that are sensitive to the cost of funds as they potentially get greater lending power. Apart from the banking and financial sector, we expect the auto sector to outperform in the coming weeks.

Do you see any historical correlation between large Fed rate cuts and sector performance in the stock market?

Sector performance varies depending on the spread and the context of rate cuts. In slow easing cycles, cyclical sectors outperform defensive sectors, while in rapid easing cycles, cyclical sectors tend to face challenges. This is because market participants interpret aggressive cuts as indicators of deeper economic problems.

Following the Fed rate cuts, while banking indices Nifty, Nifty and Sensex are enjoying record highs, midcaps posted gains. What is your take?

The Nifty Midcap 100 index marked a low of 58352 on Thursday and thereafter staged a recovery on Friday. On a weekly scale, it has formed a small-bodied candle with a long lower shadow, indicating buying interest at a lower level.

We believe that if the index sustains above the 60500 level, we could witness a strong rally in the midcap segment as well. In that case, the index is likely to test the 61500 level, followed by the 62300 level in the near term.

We are now through most of the key events and nothing seems to be shaking up our markets right now. Do you foresee any triggers that will push or pull key indices in the near term?

Currently, the main event on the horizon is the 2024 US presidential election, scheduled for November 5, 2024. In addition to this important political event, geopolitical tensions in West Asia could potentially disrupt global oil and gas markets, leading to short-term volatility in the stock market.

Metal stocks have performed very well in Friday’s session. What is your current outlook on the sector? Was this an intraday phenomenon or could it continue for some time?

We believe that this is an intraday phenomenon as the Nifty Metal index is still consolidating in a range. The 9500-9550 zone will act as an immediate hurdle for the index. If it sustains above the 9550 level, then we could witness a strong bullish rally towards the 9800 level, followed by the 10,000 level in the near term.

Are there broader sectors to pay attention to?

Technically, Nifty Bank, Nifty Financial Services, Nifty Auto and Nifty FMCG are likely to outperform in the near term.

Any stock recommendations within those sectors?

ICICI Bank, HDFC BankEscorts, M&M, Eicher Motor, Maruti, Nestle and Havells are likely to outperform in the near term.

(Disclaimer: The recommendations, suggestions, views and opinions of the experts are their own and do not represent the views of Economic Times)