Nifty rally may take a breather, but charts say midcap & smallcap stock indices may not pause

NSE Nifty 50 might take a breather in December, after repeatedly setting fresh all-time highs last month. The rally that the benchmark index saw last month was backed by the strong foreign fund inflows and the positive newsflow around the covid-19 vaccine. “In the coming month, we maintain our overall constructive stance with an incremental shift to broader markets, as the Nifty is expected to undergo consolidation amid positive bias in the range of 12800-13200 after a sharp 14% rally in November,” said brokerage and research firm ICICI Direct.

Nifty support, resistance

Today, on the first trading session of December, Nifty once again breached 13,000 and was sitting comfortably in the green. ICICI Direct has a target of 13,200 for Nifty this month, and says that any decisive move above those levels would signal an extended rally towards 13,600. “Hence, we recommend utilising declines as incremental buying opportunities as we do not expect the Nifty to breach its key support at 12,500 levels,” the firm added. Nifty has a strong support at 12,500, as it is just above the pre-coronavirus high of 12,430.

Opportunity in midcap and smallcap stocks

Although the 50-stock Nifty is expected to consolidate, analysts now find opportunities in the broader markets. ICICI Direct expects Nifty Midcap 100 to outperform as the index has resolved from a three year falling channel, indicating a fresh structural bull market. “Historically, each up leg in the bull market over the past decade has averaged 44%. We expect the index to maintain this rhythm and head towards life highs of 21840 levels over the next few months,” the brokerage firm said.

For the Nifty smallcap 100, charts predict some accelerated momentum. The smallcap index too has also resolved from a three-year falling channel, again indicating a fresh structural bull market. ICICI Direct expects the index to chart its path towards 7800 level in the next few months.

Sectors to watch

Among sectors, technical analysts see the consumer goods space and the metals sector to be improving. “IT and pharma, after the recent breather are placed at attractive levels. We expect the recent breather to be approaching maturity. Thus, it provides a bargain buy opportunity with a favourable risk reward set-up,” ICICI Direct said. After recent outperformance, banking stocks are well placed but could mirror the market trend and move range-bound.