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Risk-reward favourable for long position in Bank Nifty; prefer ICICI Bank, IndusInd Bank: JM Financial Services

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Risk-reward favourable for long position in Bank Nifty; prefer ICICI Bank, IndusInd Bank: JM Financial Services

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JM Financial Services is of the view that on a weekly basis, the risk-rewards are very much favourable for a long position in Bank Nifty especially led by private banks. From the private banking space, two banks that they like, particularly from an investment perspective, are ICICI Bank and IndusInd Bank.

Rahul Sharma, associate director and head of technical and derivative research at JM Financial Services, shared his views on the technical trends for the market, going forward.
Sharma said, “Nifty achieved its target of around 17,800 almost in the last week and post that, the Chinese issue has taken things to the next level, especially the India VIX and the S&P 500 VIX have reached around four-month highs. Last time this happened when India VIX, basically the volatility indicator went up, was when there were inflation fears. Bond yields rose in the US in May and now we have the Chinese issue, which is dragging the markets down.”
According to him, the most important thing to watch here is that the market breadth has gone down and an important support for Nifty is seen at 17,317-17,350 zone. If this level breaks, the correction may sharpen and we may see 17,000 being tested on Nifty on an immediate basis.
However, broadly if one were to see the bigger picture, then people have been waiting for this correction since a long time and finally when this correction is playing out, it would be a good investment opportunity to accumulate fresh longs, to enter into fresh longs at lower levels, opined Sharma.
“How Nifty behaves in this week will be the deciding factor for how this train will play out. If 17,300 is maintained, then there is a good chance that we may bounce back by tomorrow because China is shut today, was shut yesterday, and there could be some regulatory action tomorrow, which could see the markets bouncing back. The next couple of days would be very crucial. We need to keep an eye on what are the developments in the Fed meet and what is happening on the China side and that will dictate a lot of how we play out from this important crucial support area of 17,300,” said Sharma.
Talking about the Nifty Private Bank Index, Sharma said, “When the Bank Nifty had taken leadership of the market, taking it almost towards the 18,000 range, we saw this correction happening. If you see the long-term ratio charts of Bank Nifty versus Nifty, it is trading at very crucial support, which means the ratio should go up and this can happen when either Nifty goes down or Bank Nifty goes up.”
“On a weekly basis, the risk-rewards are very much favourable for a long position in Bank Nifty especially led by private banks. From the private banking space, the two banks that we like, particularly from an investment perspective, are ICICI Bank and IndusInd Bank,” said Sharma.
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Sharma further said, “ICICI bank has been the leader in the private banking space. The chart setup has been pretty robust and all the dips have been bought into. So, we wouldn't be surprised if a level of Rs 800-825 will be reached in ICICIC Bank in the near term and we may see outperformance continuing in the same.”
“On the other hand, we have seen a breakout in IndusInd Bank in the last week. The breakout is getting retested but we believe that as long as the market doesn't give up broadly, the Bank Nifty at 36200 and the Nifty at 17,300, the dip will get bought into and we may see the Bank Nifty rally continue once again, on the back of private banks,” he said.
“PSU banks started improving, but have again gone into the consolidation areas, and we need to wait for further configuration of PSU banks to improve but as far as private banks are concerned the situation is relatively better as compared to the entire banking basket,” stated Sharma.
For the entire discussion, watch the video
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