No structural breakdown yet in small and midcap indices: Anand James
ETMarkets.com
Synopsis
The gap between largecaps and small and mid cap indices is widening, but no structural breakdown has occurred. IT stocks, except for TCS, are in a downtrend. Tata Steel shares hit fresh 52-week highs. A largecap route is a more broad based one, while smaller cap approach is often in search of superlative returns, and provides a larger universe to pick. This advantage stays with the smaller market capitalized segment.
Despite the gap widening in favour of largecaps, a structural breakdown in small and mid cap indices is yet to be seen, says Anand James, Chief Market Strategist, Geojit Financial Services.
“And it serves to note that a large cap route is a more broad based one, while smaller cap approach is often in search of superlative returns, and provides a larger universe to pick. This advantage stays with the smaller market capitalized segment,” he says. Edited excerpts:
Following the directional move seen on Friday, how has your view changed on Nifty's trajectory for the March series?
Anand James: In fact, the pessimism that was growing on us, changed on Thursday as the downside attempts failed to gain momentum. This allowed us to reposition for an upside that is ready to catapult Nifty into the 22500-800 orbit. Alternatively, a fall back below 22120 could force us reconsider the upside trajectory. We also acknowledge the fact that last week’s surge was largely large cap focussed, and there is a reluctance in the smaller caps to tag along. Whether this divergence will persist or not, is a story we are keen to follow closely, but the present premise is that the large cap’s momentum can continue pushing benchmark indices higher, and should not be missed, and that the smaller caps’ story is one of a consolidation, for now.
This trend has been more visible in the last week or so, where the gap widened with small and mids correcting, while large caps found broad based buying. However, this turn of events is yet to force a structural breakdown in the small and mid cap indices. And it serves to note that a large cap route is a more broad based one, while smaller cap approach is often in search of superlative returns, and provides a larger universe to pick. This advantage stays with the smaller market capitalized segment.
IT stocks have not participated in the rally. How to deal with the downtrend now?
Anand James: IT largecaps, apart from TCS, have started to form reversal patterns in weekly timeframe hinting at more declines. We expect more declines in Infy, Hcltech and Techm in the coming days. Smallcaps were more vulnerable last week with 77% of the smallcap IT stocks ending negative on a week on week basis. The average 14D RSI of smallcap IT stocks is below 46 and a dip in coming days could make the section more attractive.
Anand James: The explosive rise and close above 147 which incidentally had attracted rejection trades twice in February, brings in very positive vibes. But with this move, we are also closer to the record peak seen in 2021, and the oscillators are yet to acknowledge the suddenness of the price rise. This prompts us to approach this breakout potential with caution, especially for fresh entries. But those who have it in the portfolio may position themselves for a move towards 160-172, with stoploss at 140 on a closing basis, within a one to two months’ time frame.
Give us your top ideas for the week ahead.
GICRE (CMP: 387)
Targets : 404 - 420
Stoploss : 373
BORORENEW (CMP: 569)
View : Buy
Targets : 590 - 620
Stoploss : 540
The Borosil Renewable stock has been on a downside since early February and recently has formed a reversal candle on a daily time frame. The stock has also closed above the Psar value on daily time frame and MACD has shown exhaustion at lower level favoring reversal. We expect the stock to move towards 590 and 620 in the next few weeks. All longs may be protected with stoploss placed below 540 levels.
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“And it serves to note that a large cap route is a more broad based one, while smaller cap approach is often in search of superlative returns, and provides a larger universe to pick. This advantage stays with the smaller market capitalized segment,” he says. Edited excerpts:
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Following the directional move seen on Friday, how has your view changed on Nifty's trajectory for the March series?
Anand James: In fact, the pessimism that was growing on us, changed on Thursday as the downside attempts failed to gain momentum. This allowed us to reposition for an upside that is ready to catapult Nifty into the 22500-800 orbit. Alternatively, a fall back below 22120 could force us reconsider the upside trajectory. We also acknowledge the fact that last week’s surge was largely large cap focussed, and there is a reluctance in the smaller caps to tag along. Whether this divergence will persist or not, is a story we are keen to follow closely, but the present premise is that the large cap’s momentum can continue pushing benchmark indices higher, and should not be missed, and that the smaller caps’ story is one of a consolidation, for now.
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This trend has been more visible in the last week or so, where the gap widened with small and mids correcting, while large caps found broad based buying. However, this turn of events is yet to force a structural breakdown in the small and mid cap indices. And it serves to note that a large cap route is a more broad based one, while smaller cap approach is often in search of superlative returns, and provides a larger universe to pick. This advantage stays with the smaller market capitalized segment.
IT stocks have not participated in the rally. How to deal with the downtrend now?
Anand James: IT largecaps, apart from TCS, have started to form reversal patterns in weekly timeframe hinting at more declines. We expect more declines in Infy, Hcltech and Techm in the coming days. Smallcaps were more vulnerable last week with 77% of the smallcap IT stocks ending negative on a week on week basis. The average 14D RSI of smallcap IT stocks is below 46 and a dip in coming days could make the section more attractive.
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Tata Steel shares jumped 6% on Friday and hit fresh 52-week highs with high volumes. What's next?Anand James: The explosive rise and close above 147 which incidentally had attracted rejection trades twice in February, brings in very positive vibes. But with this move, we are also closer to the record peak seen in 2021, and the oscillators are yet to acknowledge the suddenness of the price rise. This prompts us to approach this breakout potential with caution, especially for fresh entries. But those who have it in the portfolio may position themselves for a move towards 160-172, with stoploss at 140 on a closing basis, within a one to two months’ time frame.
Stocks Recommendations
GICRE (CMP: 387)
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View : BuyTargets : 404 - 420
Stoploss : 373
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The GIC Re stock has been moving within a triangle pattern in the daily timeframe. It has formed a reversal candle near the rising trendline of the pattern hinting at a pullback. MACD has shown signs of exhaustion at lower levels favoring our bounce back expectation. We expect the stock to move towards 404 and 420 in the next few weeks. All longs may be protected with stoploss placed below 373 levels.BORORENEW (CMP: 569)
View : Buy
Targets : 590 - 620
Stoploss : 540
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The Borosil Renewable stock has been on a downside since early February and recently has formed a reversal candle on a daily time frame. The stock has also closed above the Psar value on daily time frame and MACD has shown exhaustion at lower level favoring reversal. We expect the stock to move towards 590 and 620 in the next few weeks. All longs may be protected with stoploss placed below 540 levels.
(You can now subscribe to our ETMarkets WhatsApp channel)
