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Nifty outlook & stock picks by Sameet Chavan: Buy Aarti Inds, sell Escorts

Nifty Outlook

Last week, the markets once again surprised everyone with a huge downside gap on Monday. It seemed as if we were completely decoupled with global peers as the weak opening had nothing to do with global cues. Since we are battling with the mounting concerns over Covid-19 cases in our country, the markets are having a knee-jerk reaction to this development. In the initial trades, the selling augmented to challenge the 14,200-mark. Fortunately, the market saw some buying interest at lower levels as we did not spend much time below this key support. A similar sort of resilience was witnessed throughout the remaining part of the week as investors tried to trim some portion of losses.   

The markets are completely clueless about trajectory in the near term. At higher levels, we are facing some pressure as the battle continues with respect to the pandemic and on the lower side, the bulls are clearly not willing to give up. Hence, it has become very difficult to take any kind of directional call on the market. As far as our recent stance is concerned, we have been quite cautious on the market and despite Nifty still holding on to a key support zone of 14,200-14,150, we continue to advocate caution till the time some important levels are not surpassed. For Nifty, the immediate resistance zone can be seen around 14,575-14,650, where a sustainable move beyond 14,650 would negate the possibility of further correction. On the flip side, all eyes are on the 14,200-14,150 zone and the more it gets challenged, the higher are the possibilities of breaching it. Below this level, the Nifty opens up the downside zone of 14,000-13,700. 

Ideally, the way the market is attracting buying interest at the support zone, we should have considered this as an accumulation. But there are a couple of observations that are holding us back and they are -- the banking index slipping below its rock-solid support of 32,400 and till the time it does not reclaim 32,500-33,000 convincingly, it is likely to be the major dragger. More importantly, the overall positioning of the Nifty Midcap50 index is completely overlooked by the market participants in general. Last week, we had highlighted the breakdown from the ‘Head and Shoulder’ pattern in this index and the weekly chart too confirmed a ‘Lower Top Lower Bottom’ for the first time since this entire marathon rally started last April. All these factors do not bode well for the bulls and hence, till the time we do not see the negation of these unfavourable developments, one should continue to remain light on positions. 

Stock Recommendations

NSE Scrip Code: Aarti Industries 

View: Bullish

Last Close: Rs 1,462.80

Justification: The stock seems to be in a different league altogether as it never gets affected by the outer world. It has seen a phenomenal run over the past seven years now with a whopping ~1400 per cent returns from sub-100 levels. Since the market is not clear with its short term direction, this can be the safe haven for all sorts of market participants. On the daily chart, we can see a series of ‘Higher Highs Higher Lows’ and on Friday, we witnessed good traction in the counter, suggesting a continuation of the upward trajectory. We recommend going long for a target of Rs 1,495 in the coming days. The strict stop loss can be placed at Rs 1,390.

NSE Scrip Code: Escorts

View: Bearish

Last Close: Rs 1,138.40

Justification: This has been one of the weakest counters within the ‘auto’ space in the last couple of months. We are seeing a continuous drift in stock prices amid in between brief pauses. The selling momentum seems to have reinforced in the last few days as the stock prices have started falling like a bottomless pit. Since the prices are trading convincingly below the sacrosanct support zone of 200-day SMA along with the weekly chart exhibiting a bearish ‘Head And Shoulder’ pattern, we expect the downward move to extend further. One can look to sell on any bounce towards Rs 1,080 for a target of Rs 1,270. The strict stop loss can be placed at Rs 1,184.




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