Top Stock Recommendations: Dharmesh Shah of ICICI Securities suggests GAIL, and JSW Energy today

Stock Market News: Monday saw one of the largest declines in the domesticbenchmark indices, the Sensex and the Nifty 50, with both indexes recording significant losses in the first trading session. Indian stock markets embraced the global carnage as their baseline.

The Sensex fell 2393.76 points, or 2.96%, to begin at 78,588.19 points, while the Nifty 50 index fell 414.85 points, or 1.68%, to open at 24,302.85 points.

In the broad market indices,including the Nifty Next 50, Nifty 100, Nifty Midcap, and Nifty Small cap, had a drop of two percent in the initial trading session.

The globalstock market rise, according to Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, has been mostly fueled by anticipation of a soft landing for the US economy. The decline in US job creation in July and the steep increase in the US unemployment rate to 4.3% have put this projection in jeopardy. An other contributing aspect is the geopolitical tensions in the Middle East. The unwinding of the Yen carry trade, which is causing the Japanese market to collapse, is another important element. The Nikkei's morning decline of more than 4% is a sign of the Japanese market's crisis.

Following a global sell-off sparked by weaker-than-expected US data, the domestic benchmark indices, the Sensex and the Nifty 50, ended a weeks-long winning run on Friday, led by information technology (IT) and auto companies.

The Sensex lost 1.08% to 80,981.95, marking the first drop in six sessions, while the Nifty 50 sank 1.17% to 24,717.7 points.

Market analysts noted that, even though it is probably going to stay the same, the RBI's policy statement on August 8th will be significant. Stock-specific moves will be driven by the final round of Q1 results. Furthermore, market dynamics will heavily depend on institutional flows.

Market Outlook by Dharmesh Shah, Vice President, ICICI Securities

The index recorded fresh All Time High of 25,078. However, profit booking from higher levels dragged index around 24,700 mark while discounting prospects of interest rate cut in US in September. Consequently, weekly price action resulted into small bear candle carrying higher high-low, indicating breather after recent sharp up move. Global volatility weighed on sentiments leading most major equity indices to decline.

Going ahead, we expect index to consolidate in the broader range of 24,400-25,200 wherein stock specific action would prevail. Key point to highlight is that, last week’s subdued activity amid overbought conditions signifies dwindling upward momentum after 18% rally seen over past 8 weeks (off election outcome low). Further, negative divergence on the weekly stochastic oscillator suggests temporary breather in coming week. However, traders should note that, in a structural bull market secondary correction is a common phenomenon. Thus, extended breather should be capitalised to accumulate quality stock amid ongoing earning season.

On the market breadth front, percentage of stocks above 50-day ema of Nifty 500 have decelerated on weekly basis from bullish extreme reading of 86% to 70% while indices made new highs. This divergence in breadth indicate profit taking at higher levels

On the broader market front, Midcap and small cap indices have rallied 25% and 28% from election low. As a result, both indices are approaching price parity of Oct23-Feb24 rally, indicating possibility of temporary breather at life highs can not be ruled out. Hence, stock specific action should be in focus amid ongoing earning season

Structurally, the formation of higher peak and trough signifies buying demand at elevated support base that makes us revise support base at 24400 as it is 38.2% retracement of past 6 week’s up moves 23,350-25,078.

The BankNifty is seen marking time in a range of 50,500-52,000 over past five sessions and undergoing higher base formation. We expect consolidation to prolong for few sessions and only a decisive close from the range on either side would signal further directional bias. Meanwhile, medium term support for index is placed at 49600 which is confluence of a) 50% retracement of post election rally and b) value of rising 100-day ema.

Top Stock Recommendations

1. Buy GAIL in the range of ₹236-244 for the target of ₹278 with a stop loss of ₹224.

2. Buy JSW Energy in the range of ₹700-725 for the target of ₹798 with a stop loss of ₹648.

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 02/08/2024 or have no other financial interest and do not have any material conflict of interest.

The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.