Technical Strategy:

Emergence of key value area = Buying opportunity

February 2020

Research Analysts

Dharmesh Shah Nitin Kunte, CMT Ninad Tamhanekar, CMT

dharmesh.shah@icicisecurities.com nitin.kunte@icicisecurities.com ninad.tamhanekar@icicisecurities.com

Pabitro Mukherjee Vinayak Parmar

pabitro.mukherjee@icicisecurities.com vinayak.parmar@icicisecurities.com

March 5, 2020
Nifty: Emergence of key value area = Buying
opportunity
Technical Outlook.. NSE Nifty Weekly Bar Chart
Domestic equity benchmarks joined a global sell-off weighed down by In the past decade, in 14 out of 16 instances, market 12% 11%

PICK
Technical Sectoral
fears of a global economic slowdown owing to fast spreading Coronavirus. corrections have been to the tune of 14-16% on an average.
In the process, contrary to our view, the Nifty breached the key support of Resistance
11800 region and went on to plunge below the Budget session low (11615).
15%
@11600

MonthlyMOMENTUM
Going ahead, despite elevated global volatility, we expect supportive
11%
efforts to emerge in the range of 10900-10600. Empirically, over the past
decade, secondary corrections to the tune of 15% within the framework of
a structural bull market is considered as a normal bull market correction,
offering a favourable risk reward. In the past decade, in 14 out of 16 Support
instances, market corrections have been to the tune of 14-16% on an @10900-10600
average. In the current scenario, the index has already corrected 11%,
thereby offering a favourable risk reward. However, a 3-4% correction
Weekly Stochastic cooled off from overbought territory, indicating extended breather
cannot be ruled out. After 11% correction, the weekly stochastic oscillator
is approaching the oversold territory (at 25), indicating an impending
pullback that is capped at 11600 on the upside.
The Nifty Midcap index extended its correction towards 50% retracement
of the past six month’s up move. We expect the ongoing correction to get
arrested near their 80% retracement. We believe the ongoing corrective

EquityResearch
Research
move would make the broader markets healthy and pave the way for the
next leg of the up move.
Sectors Outperformers Bargain Buy Relative rotation graph projection: Cyclicals to outperform
HDFC, Bajaj Finserv, Kotak
BFSI HDFC Bank, Axis Bank, CUB

Equity
bank Returns Returns Ranking
40 Ranking
Titan, Voltas, Dabur, Asian United Spirits, Astral Poly
Consumption 35

– Retail
Paints technik 30

– Retail
-------- Potential Returns (%) --------

25
Capital Goods IRCON, KEC, Timken, JK L&T, JK Lakshmi Cement, Birla 20

& Infra Cement, KNR Construction Corp 15 Bargain Buy Outperformers

ICICI Securities
Banking, Telecom
10 Captal Goods & Infra
TCS, Persistent Systems, Tata
IT L&T Infotech, Mindtree 5

ICICI Securities
Elxsi 0

Metals Ratnamani Metals Tata Steel, JSW Steel -5

-10
Market Performers
Neutral
Biocon,Ajanta Pharma, Alembic -15
Pharma Granules, IPCA Labs, Sanofi Auto, Metals, Oil & Realty, Consumption, IT
Pharma -20 Gas PSU, Pharma

Bayer Cropscience, Polycab,

Others Bharti Airtel, Balrampur Chini Returns Ranking Returns Ranking
Deepak Nitrite, Metropolis 1 2 3 4 5
-------- Technical Ranking --------
Source: Bloomberg, ICICI Direct Research * Ranking improves from 1 to 5
March 5, 2020 ICICI Securities Ltd. | Retail Equity Research 2
 Nifty approaching price wise, time wise maturity…
Nifty – Monthly Bar Chart 11% Nifty Index: Corrections since 2008
Time wise, the Nifty has maintained a rhythm of not 12% Time Correction
correcting for more than three consecutive months since CY17 15% Resistance

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Technical Sectoral
11% @11600 From To (%)
Jun'09 Jul'09 17

MonthlyMOMENTUM
Jan'10 May'10 12

10637 Nov'10 Dec'11 29

25%
12% Feb'12 May'12 15
10005
Price wise, in the past decade, in 14 out May'13 Aug'13 18
of 16 instances, market corrections have
Mar'15 Feb'16 25
been to the tune of 14%, on an average
Sep'16 Dec'16 12

29% Jan'18 Mar'18 11

18%
Key support at 10900-10600 as it is: Sep'18 Oct'18 15
15%
12%  Major bottom formed during August
Jun'19 Aug'19 12
2019 is at 10637
 Over the past decade, index has Jan'20 Mar'20 11

EquityResearch
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seen major average corrections to the Average excluding 2010 and 2015 14
tune of 15%, placed around 11565
 price parity of August-October 2018 Technical Outlook
fall (11760–10005) and projected from o We believe the index is approaching

Equity
January high of 12430, at 10580 price wise and time wise maturity of
ongoing correction. We expect

– Retail
supportive efforts to emerge in the

– Retail
Monthly Stochastic oscillator is pointing downward, indicating corrective bias range of 10900-10600 despite
elevated global volatility

ICICI Securities
ICICI Securities
o Among oscillators, weekly stochastic
is approaching oversold territory
(currently placed at 25), indicating
impending pullback, which is capped
at 11600 on the upside

Source: Bloomberg, ICICI Direct Research

March 5, 2020 ICICI Securities Ltd. | Retail Equity Research 3
 Bank Nifty: Index approaching price wise, time wise
maturity of corrective decline
Bank Nifty – Monthly Bar Chart Technical Outlook
16% 12%
Resistance

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Technical Sectoral
Time wise: Corrections are not more 15% 15% @30200 o We believe the index has strong
than three months support in the range of 27600-26500.

MonthlyMOMENTUM
Any corrective decline towards the
36% support area will provide a favourable
14% risk reward set-up

o Time wise, the index has not corrected

for more than three months since
Price wise: Equality with previous February 2016 with two months of
major correction signals major support decline already behind us. We expect
38% at 27600-26500
42% it to maintain the rhythm and form a
Time Correction base in the coming month
20% From To (%)
Jun'09 Jul'09 16
o Price wise, in the past decade, in eight
15% Oct'09 Feb'10 15
out of the 11 instances, market

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Nov'10 Dec'11 42
Feb'12 May'12 20 corrections have been to the tune of
May'13 Aug'13 38 15-17%, on an average. In the present
Feb'15 Feb'16 36 context, the correction unfolding since
Sep'16 Dec'16 14
January 2020 life-time high (32613)

Equity
Jan'18 Mar'18 15
Sep'18 Oct'18 15
has already corrected for 12%. A
Jun'19 Aug'19 16 similar magnitude of correction

– Retail
Aug'19 Jan'20 12 highlights support at 27600-26500,

– Retail
Average excluding 2010 & 2015 17 which also coincides with the panic
low of August 2019

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o On pullback, the index will face hurdle

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around 30000-30200 as it is the
bearish gap area of February 28, 2020
and the presence of 200 days SMA

Source: Bloomberg, ICICI Direct Research

March 5, 2020 ICICI Securities Ltd. | Retail Equity Research 2
Nifty Midcap Index: Continuance of relative
outperformance…
Nifty Midcap 100 – Weekly Bar Chart Technical Outlook
21841

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Technical Sectoral
o The monthly price activity formed a
sizable bear candle, indicating a
Strongest rally (24%)

MonthlyMOMENTUM
breather near April 2019 high (18463)
since January 2018
post witnessing faster retracement, as
over the past five months the index
18496 rallied 24% and entirely retraced
preceding 11 month’s consolidation
(18463–14975)

o We believe the ongoing corrective

11 months
phase would help the weekly
consolidation
stochastic oscillator to cool off the
overbought condition (currently at 20)
14976 and pave the way for the next leg of up
Faster pace of 5 months move in coming months. Hence, we

EquityResearch
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retracement Up move advise investors to capitalise on any
dip towards 16000-15700 to be used
to accumulate quality midcap stocks
as it is 80% retracement of August-

Equity
February rally (14975–18495), at
15670 coincided with 200 weeks EMA

– Retail
Weekly Stochastic oscillator is pointing downward, indicating corrective bias placed at 16200

– Retail
ICICI Securities
ICICI Securities
Source: Bloomberg, ICICI Direct Research
March 5, 2020 ICICI Securities Ltd. | Retail Equity Research 4
Nifty Small Cap Index: Breather after strongest rally in
two years, signifies healthy consolidation…
Nifty Small cap 100 – Weekly Bar Chart Technical Outlook
9656

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Technical Sectoral
11% up o Key point to highlight is that over the
move past five weeks the index has retraced

MonthlyMOMENTUM
50% of the preceding six week’s up
12% up
move (5554–6401), at 5978. Slower
move
pace of retracement post five month’s
21% up (25%) up move indicates secondary
move 25% up corrective phase. This helped the
move weekly stochastic oscillator to cool off
overbought conditions (at 13) and set
the stage for the next leg of the up
move to unfold

o Going ahead, we expect the index to

arrest the ongoing corrective decline
around 5400 and gradually form a

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higher base. Hence, any dip towards
5400 should be capitalised on to
accumulate quality stocks as it is 80%
retracement of August–February rally

Equity
(5115–6400), at 5372 coincided with
Weekly Stochastic oscillator is approaching oversold territory, indicating corrective bias October 2019 low (5325)

ICICI Securities
ICICI Securities – Retail
– Retail
Source: Bloomberg, ICICI Direct Research
March 5, 2020 ICICI Securities Ltd. | Retail Equity Research 4
Sectoral merry-go-round: Cyclicals to drive
Relative Rotation Graph – Month on Month
Source: Bloomberg, ICICI Direct Research
March 5, 2020
Outlook
PICK
Technical Sectoral
o The Bankex remains in the
weakening quadrant but has seen a
MonthlyMOMENTUM
reduction of momentum on the
downside. Banking stocks are near
the major support area and are
likely to see a pullback in coming
months. Hence, it is expected to
outperform in coming month
o Capital goods & infra stocks after
the recent sharp decline are placed
around the value area. Hence,
capital goods stocks provide a good
risk-reward set-up for a bargain buy
opportunity
EquityResearch
o IT and pharma are currently placed
Research
in improving and leading quadrants,
respectively, and have recently
witnessed stock specific activity.
We expect the stock specific
Equity
activity to continue. The sectors, as
a whole, should perform on par with
– Retail
the market
– Retail
o Consumption stocks are expected
to consolidate and perform at par
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with the market in coming month
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o Oil & gas, auto and metal are placed
at the lagging and weakening
quadrant, respectively, and have
seen a sharp fall in momentum. We
expect them to relatively
underperform in the coming month
ICICI Securities Ltd. | Retail Equity Research
2
Sectoral indices – Relative to benchmarks

Relative Strength Comparative: Evaluating underlying strength

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Technical Sectoral
• To closely gauge the underlying strength in respective sectors vis-à-vis the benchmark, we analyse the Relative Strength Comparative (RSC) indicator. As the name suggests, it is a
comparative measure of strength vis-à-vis a benchmark or a sector

MonthlyMOMENTUM
• While the RSC line is rising, the sector is outperforming the general market i.e. it is either rising faster than the benchmark in an up trending market or going down less, in a down
trending market or even rising. While the RSC line is falling, the sector is underperforming the broad equity market. If the market is going up, the sector is going up less or may be even
going down. If the market is going down when the RSC line is falling, the sector is going down more than the market. A flat RSC line indicates in line market performance going up or
down by the same magnitude

• The purpose of this exercise is to identify those sectors that are outperforming and avoid sectors that are underperforming

BSE IT – Monthly Chart BSE IT Index vs. Sensex – Relative Comparison BSE IT Index

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Positive bias intact
• The index extended its up move in a
gradual manner with relative
outperformance in select midcaps

Equity
• Relative ratio of index with Sensex
continues to oscillate in a range. However,

– Retail
in absolute terms, the index is eyeing a
breakout from consolidation range, which

– Retail
augurs well for long term price structure
• We expect stock specific action to

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continue in the IT space

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• Technically, TCS, L&T Infotech, Persistent
Systems, Tata Elxsi, MindTree look
positive

Source: Bloomberg, ICICI Direct Research

March 5, 2020 ICICI Securities Ltd. | Retail Equity Research 8
Sectoral Indices – Relative to benchmarks

BSE Capital Goods – Monthly Chart BSE CG vs. Sensex – Relative Comparison BSE Capital goods Index

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Technical Sectoral
• Capital Goods Index relatively
underperformed as it snapped the prior
month’s gains

MonthlyMOMENTUM
• The index is currently poised at the key
long term support around 16000 as it is
lower band of multi month consolidation
• Going ahead, we expect the index to
attempt a pullback from the lower band of
consolidation while in relative terms sector
could underperform
• Stocks like L&T, Ircon, KEC, Timken are
expected to outperform

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BSE Oil & Gas – Monthly Chart BSE Oil & Gas vs. Sensex – Relative Comparison BSE Oil & Gas Index
Consolidation likely around 16000
• The index extended its breather for a fifth

Equity
month in a row as upstream companies
remained under pressure

– Retail
• Going forward, we expect the index to

– Retail
continue its relative underperformance as
RSC line has given a breakdown from
channel. In absolute terms, the index is

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poised at the key support and appears
oversold. Hence, technical pullback cannot

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be ruled out

Source: Bloomberg, ICICI Direct Research

March 5, 2020 ICICI Securities Ltd. | Retail Equity Research 9
Sectoral Indices – Relative to benchmarks

BSE FMCG– Monthly Chart BSE FMCG Index vs. Sensex – Relative Comparison Consumption

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Technical Sectoral
• The index witnessed stock specific
performance while it performed in
tandem with benchmarks (ex-ITC)

MonthlyMOMENTUM
• The key support for the index is placed
around 11000, which is the value of long
term trend line
Support at 11000 • Going forward, we expect the index to
underperform in relative terms while stock
specific action is likely to continue
• We remains positive on Titan Company,
Voltas, Dabur, Asian Paints while United
Spirits, Astral Poly Technik offer a
favourable risk-reward setup

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BSE Realty – Monthly Chart BSE Realty vs. Sensex – Relative Comparison BSE Realty and Infra

• The Realty Index took a breather after four

Equity
Consolidation likely month gains indicating temporary
consolidation

– Retail
• We expect players with commercial

– Retail
portfolios to continue outperformance
aided by their robust price structure

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• In relative terms, the sector is expected to
outperform

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• We expect JK Cement, KNR Construction
to outperform while JK Lakshmi Cement,
Birla Corp offer favourable risk-reward
setup

Source: Bloomberg, ICICI Direct Research

March 5, 2020 ICICI Securities Ltd. | Retail Equity Research 10
Sectoral Indices – Relative to benchmarks

BSE Metal – Monthly Chart BSE Metal vs. Sensex– Relative Comparison BSE Metal Index
Base formation to continue

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Technical Sectoral
Relative underperformance to continue • The Metal Index extended its breather led
by weak base metal prices amid
Coronavirus scare

MonthlyMOMENTUM
• Structurally, the metal index is forming a
base around its key long term support
after a prolonged downturn. We expect
the ongoing base formation to act as a
launchpad for the next up leg
• Technically, Tata Steel and JSW Steel
offer a favourable risk-reward setup while
Ratnamani Metals is expected to extend
its outperformance

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BSE Pharma– Monthly Chart BSE Pharma Index vs. Sensex – Relative Comparison BSE Pharma Index

• The Pharma index extended gains in

Equity
February 2020 and saw outperformance in
relative terms

– Retail
• The RSC line is making headways after

– Retail
basing pattern and poised for a breakout
from multi year down trend line

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• Going ahead, we believe the index will
extend its technical pullback and maintain

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its relative outperformance
• In terms of technical set-up, we expect
Granules, Ipca Labs, Sanofi to outperform
while Biocon, Alembic Pharma, Ajanta
Pharma, offer favourable risk reward

Source: Bloomberg, ICICI Direct Research

March 5, 2020 ICICI Securities Ltd. | Retail Equity Research 11
Sectoral Indices – Relative to benchmarks

BSE Auto – Monthly Chart BSE Auto vs. Sensex – Relative Comparison BSE Auto Index

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Technical Sectoral
• The Auto Index edged down from three
month consolidation indicating extended
corrective phase

MonthlyMOMENTUM
• In relative terms, the index continues to
underperform benchmarks
• We expect the index to extend its
corrective phase and underperform in
relative terms against benchmarks

Relative under performance to continue

ICICI Securities
ICICI Securities – Retail
– Retail EquityResearch
Equity Research
Source: Bloomberg, ICICI Direct Research
March 5, 2020 ICICI Securities Ltd. | Retail Equity Research 12
Forthcoming Economic Event Calendar

Date Event Date Event

US China

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Technical Sectoral
2-Mar Markit US Manufacturing PMI 2-Mar Caixin China PMI Mfg

MonthlyMOMENTUM
4-Mar Markit US Services PMI 4-Mar Caixin China PMI Composite
4-Mar Markit US Composite PMI 10-Mar New Yuan Loans CNY
6-Mar Change in Nonfarm Payrolls 16-Mar Retail Sales YoY
17-Mar Industrial Production MoM 16-Mar New Home Prices MoM
17-Mar Manufacturing (SIC) Production 16-Mar Industrial Production YTD YoY
18-Mar FOMC Rate Decision (Upper/Lower Bound) 20-Mar FX Net Settlement - Clients CNY
24-Mar New Home Sales MoM 27-Mar Industrial Profits YoY
26-Mar GDP Annualized QoQ 31-Mar Manufacturing PMI
30-Mar Pending Home Sales MoM 31-Mar Non-manufacturing PMI
India UK

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2-Mar Nikkei India PMI Mfg 2-Mar Markit UK PMI Manufacturing SA
4-Mar Nikkei India PMI Services 4-Mar Markit/CIPS UK Services PMI
5-Mar BoP Current Account Balance 11-Mar Monthly GDP (MoM)

Equity
12-Mar IIP/CPI YoY 17-Mar Average Weekly Earnings 3M/YoY
16-Mar Wholesale Prices YoY 25-Mar Retail Price Index

– Retail
31-Mar Eight Infrastructure Industries 26-Mar Bank of England Bank Rate

– Retail
31-Mar Fiscal Deficit INR Crore 31-Mar GDP QoQ

ICICI Securities
ICICI Securities
Source: Bloomberg, ICICI Direct Research
March 5, 2020 ICICI Securities Ltd. | Retail Equity Research 13
Guidelines to RRG Charts......

In this section, we focus on the relative performance of the BSE sectoral indices. The adjacent scatter chart highlights the relative performance of various sectors of the BSE relative to the
Sensex with the y-axis plotting the relative price momentum and the x-axis plotting the relative price. The chart is then subdivided into four quadrants. The details of each quadrants has been

PICK
Technical Sectoral
explained in the notes at the end of the report.

MonthlyMOMENTUM
Leadership quadrant: Top right is “Leadership” quadrant, which represents a sector that has strengthened in relative price and momentum vis-à-vis the Sensex.

Weakening quadrant: Bottom right is the “Weakening” quadrant where the relative price of a sector has started to deteriorate and momentum has started to slow.

Lagging quadrant: Bottom left is the “Lagging” quadrant where the relative price of a sector has become negative with momentum suggesting underperformance vis-à-vis the benchmark.

Improving quadrant: Top left is the “Improving” quadrant where the relative price trend of the sector has started to rise with momentum.

ICICI Securities
ICICI Securities – Retail
– Retail EquityResearch
Equity Research
March 5, 2020 ICICI Securities Ltd. | Retail Equity Research 14
 MOMENTUM PICK
Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICI Securities – Retail Equity Research

ICICI Direct Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

research@icicidirect.com

March 5, 2020 ICICI Securities Ltd. | Retail Equity Research 15

Disclaimer
We /I, Dharmesh Shah, Nitin Kunte, Ninad Tamhanekar, Pabitro Mukherjee, Vinayak Parmar Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the
subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts are not registered as research analysts by FINRA and are not associated
persons of the ICICI Securities Inc. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee
of the companies mentioned in the report.

MOMENTUM PICK
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March 5, 2020 ICICI Securities Ltd. | Retail Equity Research 16