Top Stock Recommendations: Dharmesh Shah of ICICI Securities suggests buying Kajaria Ceramics, and Natco Pharma today

Stock Market News: Weak global signals and a drop in Asian markets led to a decline in the domesticbenchmark indices, Sensex and Nifty 50, at the beginning of the new week today. As the date of the Fed meeting draws near and as growth in the economies of China and Germany slows, markets throughout the world are under pressure.

The Sensex began at 80,973.75, down 210 points, or 0.26%, while the Nifty 50 index opened lower, down 28 points, or 0.12%, at 24,823 points.

The CBOE VIX increased by 12% to 23.50, indicating that the market is likely to get volatile in the next days, according to Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. Markets are expected to be influenced by two factors: the US presidential election result and the Fed's decision to lower interest rates. Investors can wait and observe till these significant events are more clear. In the meanwhile, one may gradually amass premium largecaps and defensives such as medicines by taking advantage of market weakness.

On Friday, ahead of a significant US employment data that could potentially affect the scope and timing of the Federal Reserve's interest rate cut, investors were nervous, and the domestic benchmark indices, the Sensex and Nifty 50, posted their worst week in three months on Friday.

The Sensex closed at 81,183.93, marking a 1.24% drop of 1,017.23 points, which is its lowest level since August 23. Similarly, the Nifty 50 decreased by 292.95 points or 1.17% to end at 24,852.15, showing a decline for the third consecutive day.

According to government data released on Friday, employment in the US increased in August but fell short of forecasts as the unemployment rate continued to decline. According to the Department of Labor, the largest economy in the world gained an estimated 142,000 jobs last month, up from the revised total of 89,000 for July.

Domestic investors would be keenly observing the rupee's movement against the dollar, crude oil prices, and the investment patterns of foreign portfolio investors (FPIs) and domestic institutional investors (DIIs), according to Pravesh Gour, Senior Technical Analyst at Swastika Investmart Ltd. In addition, changes in the price of crude oil and geopolitical developments will have a significant impact on market movements this week.

Market Outlook by Dharmesh Shah, Vice President, ICICI Securities

The index stated the week on a firm note and recorded new all time high of 25,333 on Monday, however global volatility triggered profit taking after 14 session rally leading Nifty 50 to close 1.45% down. Nifty Midcap index lost 1% while Small cap index closed flat.

The Nifty 50 snapped three-week winning streak and formed a Engulfing Bearish Candlestick pattern on weekly time frame indicating profit taking amid overbought prices and pause in upward momentum.

Going forward, we expect last week highs of 25,300 to act as strong hurdle in coming week and Nifty 50 to undergo retracement of past three-week rally as prices reached overbought conditions.

Meanwhile stock specific action may continue with key support for index at 24,500 levels where supportive efforts are expected to emerge, which is value of rising 50-day ema and 61.8% retracement of recent three-week rally.

Our view is anchored upon following key observations:

a) Historically, September has been a month with elevated volatility both domestically and globally. With Nifty 50 already witnessing three-week rally, we expect markets to witness bouts of volatility and undergo short term corrective phase. From structural point of view, this will only make long term trend healthy.

b) Brent prices were down 7% during last week as fear of slowdown and higher US production weighed on sentiment. Prices are at the cusp of break down from past eight-month triangular consolidation.

c) Over past 10 sessions, on 70% occasions breadth was in favour of declines indicating profit taking after a good run up. This may continue for next few sessions.

d) Sectorally, Pharma, FMCG, IT are expected to relatively perform better. PSU banks appear oversold technically and are poised for a bounce back.

On the Bank Nifty front, short term trend remains corrective. Index formed a bearish engulfing line pattern on weekly chart indicating corrective bias. We expect index to consolidate in 51,800 to 50,000 range in coming week.

Top Stock Recommendations

1. Buy Kajaria Ceramics CMP ₹1,460, Target ₹1,595, Stoploss ₹1,335.

2. Buy Natco Pharma CMP ₹1,550, Target ₹1,700, Stoploss ₹1,425.

Disclaimer: The Research Analyst or his relatives or I-Sec do not have actual/beneficial ownership of 1% or more securities of the subject company, at the end of 06/09/2024 or have no other financial interest and do not have any material conflict of interest.

The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.