Outlook on metal stocks remain bearish, FMCG ripe for pullback: Anand James

Edited excerpts from a chat:

With Nifty showing strong resistance around 18,880 level with support near the 18,650 mark, what are the key levels to watch out for in the monthly expiry week?
Multiple attempts to push beyond the record peak, turned to be futile, with the rejection trades thereof ended up with sharp falls on the last two days of the week. The 200+ points fall from the top has forced a close, slightly below the 20 day moving average, which is the first time since late March, during which the 2000 point rally has been in play. It is prudent to take a cautionary stance as the last time it turned lower from record peak in December 2022, the declines thereof stretched for more than two and a half months wiping out over 2000 points.

December’s fall was different in that there were clear reversal patterns that are missing in last week’s breakdown, which appears more as a consolidation pattern. A mean reversion move is possible though, and the 18317/70 region appears to be the first landing point, with 18042, the previous consolidation low, as a stronger support.

However, we feel that, with nearly 40% of Nifty as well as NSE 500 stocks yet to clear December peaks, the rally still has more legs, and hence we remain optimistic of a recovery without breaching the 18570/440 region, followed by a new peak.

Some buying was seen in HDFC Bank during the week as investors are awaiting the record date of its merger with HDFC. What are the charts looking like?
HDFC Bank attracted abnormal volumes on Friday, the highest in more than a month. Though we had a positive close, which was above the month’s peak, the hammer candle discourages us from seeing this as a bullish sign, until more confirmation is seen. We suspect that the last two days’ upswings found rejection trades from the crucial 1660 vicinity. Those looking to buy would do well to have a downside marker in the 1620 vicinity for Monday. We would wait for a break of 1660 for riding as a sustainable push higher with eyes on 1790 first.

Shriram Finance and CreditAccess Grameen were among the top gainers in Nifty500 pack during the week. Do you think that the momentum may last in the coming week as well?
The presence of a multiple bullish continuation in the short as well as longer time frames that has followed a consolidation breakout now, points to the potential for 1800, but we would rather go for 1490 in the next one to two months. Shriram Finance on the other hand has found exhaustion after a break away run. The stock faces the risk of reversal and closing the breakaway gap and falling back below 1580, should it close below 1670. Else, look for 2080 in the next two months.

Metal and FMCG stocks were among the worst sectoral performers in the week. What could be behind the decline and what’s the outlook ahead?
The BSE Metal index was dragged down this week by Hindalco, Tatasteel, Jswsteel and Adanient which together form 71% to the index. Firm dollar and lower expectation on more stimulus measures from China post the recent rate cuts weighted on base metal prices. Also, Adani Enterprises contributed to the fall towards the latter part of the week after reports of US regulatory scrutiny. The overall outlook remains bearish with high weightage stocks signaling further decline in coming days which is likely to pull BSE Metal index further down.

Meanwhile, profit booking in heavyweight stocks like HUL, ITC, Nestle and Britannia pulled the NSE FMCG index down. Hindustan Unilever led the decline after the stock went ex-dividend early this week. The recent decline looks to have brightened the prospects for a pull back attempt in coming weeks.

The mid and smallcap space has been buzzing. Which are the top 3-4 ideas for the coming week?

1)NATCOPHARM

View: Buy

Entry range: 674 – 660

Target: 695 – 725

Stoploss: 634

After the rangebound move since the beginning of May, the stock has finally broken above the horizontal trendline resistance of 650 on a closing basis. Also the MACD in the daily time frame has broken above the signal line supporting our assumption of positivity going forward. We expect the stock to move towards 674 and 725 in the next few weeks. All longs may be protected with stoploss placed below 634. A buy on dips approach may be employed.

2)HOMEFIRST

View: Buy

Entry range: 756 – 746

Target: 780 – 800

Stoploss: 723

After the more than 20% upside since the later part of May, the stock has been witnessing some profit booking and has formed an inverted pinbar doji candle in daily charts near the 61.8% Fibonacci retracement level of the May 25th low and June 16th high prompting us to look for a strong reversal in the near term. We expect the stock to move towards 780 and 800 in the next few weeks. All longs may be protected with a stoploss placed below 723.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)