Bear days are numbered, build quality portfolio. These stocks are hot picks

On Friday, Sensex finished at 52,727.98 up by 462.26 points or 0.88%. Nifty 50 closed at 15,699.25 higher by 142.60 points or 0.92%.

Both the benchmarks have gained nearly 3% each from June 20 to 24. During these days, investors’ wealth on BSE climbed by ₹7,40,977.89 crore.

BSE market cap stood at ₹234,86,923.67 crore on June 20 and jumped to ₹242,27,901.56 crore on June 24.

Research Analysts – Dharmesh Shah, Nitin Kunte, CMT, Pabitro Mukherjee, and Vinayak Parmar at ICICI Securities in their technical note said, equity benchmarks behaved contrary to our expectations as downbeat global cues tracking anxiety around rising inflation globally, rate hikes weighed on investor sentiments.

On Nifty 50, they said the velocity of the decline accelerated on breach of March low of 15700 and drifted further to the 15200 mark.

Going forward, the analysts said, “We expect the index to gradually resolve higher and extend pullback towards the 16600 regions in coming months wherein strong support is placed in the vicinity of 14800-14600 zone, which we expect to hold as it is 80% retracement of CY-21 rally (13596-18604), at 14600. Thus, dips should be utilised to construct a portfolio by accumulating quality stocks in a staggered manner.”

ICICI Securities analysts’ positive bias is based on four factors:

1. The reading of the percentage of stocks above 200 DMA below 15 signifies extreme pessimism in the markets that eventually leads to a technical pullback to the tune of a minimum of 10% in the subsequent three months.

2. Index has already corrected 18% from the life highs and has approached oversold reading on the weekly momentum oscillator. The weekly RSI has approached its lowest level (placed at 35) since May 2020. Historically, a reading of 35 on weekly RSI has produced a decent pullback, and the analysts expect this rhythm to maintain in the coming months.

3. India continues to relatively outperform the EM basket even in the ongoing corrective phase despite significant selling by FIIs. Over the past one year, while the MSCI EM index has corrected over 40% from highs, India has relatively outperformed as the benchmark corrected only 18%.

4. The India VIX and crude oil prices have cooled off from the recent swing high. Indian Equities have an inverse correlation with the India VIX. Thus, providing impetus for the acceleration of ongoing pullback.

They added, “On the broader market front, in three instances over the past decade, intermediate correction in the Nifty Midcap, Small cap indices have been to the tune of 28% and 40%, respectively. At present, both indices have corrected 25% and 34%, respectively.”

Therefore, the analysts said, “any further correction is likely to be short-lived amid oversold territory and would set the stage for a technical pullback in coming weeks.”

Here are the top picks of ICICI Securities analysts:

BFSI – SBI, HDFC, Kotak Bank, Federal Bank, and Bajaj Finance.

Telecom & Technology – Reliance, TCS, Infosys, L&T Infotech, HCL Technology, and Coforge.

Capital goods – L&T, ABB, Siemens, BEL, AIA Engineering, ELGI Equipment, Sanghvi Movers, and Timken India.

Consumption – Hindustan Unilever, Titan, ITC, Asian Paints, Tata Consumer, Havells India, Jubilant Foods, and Astral Poly.

Auto – M&M, Maruti Suzuki, Ashok Leyland, Jamna Auto, Mahindra CIE, FIEM Industries, and Minda Industries.

Infra and Realty – DLF LTD, Brigade Enterprise, and Phoenix Mills.

Pharma & Chemicals – Divi’s Laboratories, Cipla, Syngene, Torrent Pharma, and SRF Ltd.

Metal – JSW Steel, Hindalco, and Graphite.

Others – Adani Port, Indian Hotels, Zee Entertainment, Trent, Concor, Nocil, Balrampur Chinni, BDL, Bluedart, Dixon Technologies, Kansai Nerolac, and NRB Bearing.

Markets weekly outlook:

For the week June 27 to July 1, ICICI Direct analysts expect Nifty to eventually resolve past falling channel placed at 15800 and gradually head towards 16200 levels in coming weeks. In expiry week, use dips towards 15400 to create long positions as the index is poised at extreme oversold readings.

ICICI Direct analysts added that brent oil prices have breached the weekly rising trend line indicating a loss of momentum and “we expect upsides to be capped in 125-130 zone.”

According to ICICI Direct analysts, amongst sectors preferences, IT, and BFSI are key sectors with favourable risk/reward, while Auto and Capital goods are expected to extend outperformance. The analysts prefer – SBI, HDFC, Kotak Bank, TCS, Maruti Suzuki, ITC, and Titan in large caps while in midcaps we like KPIT Technologies, Federal Bank, AIA Engineering, NRB Bearings, Ashok Leyland, Automotive Axles, Bharat Electronics, Havells, Trent, and Indian Hotel.

Yesha Shah, Head of Equity Research, Samco Securities said, “The coming week has a host of events arriving which could affect the mood of the market. Globally, investors will keenly analyze the US quarterly GDP growth rate numbers. The USA would officially enter into a recession if they post a negative growth and thus this could have a spill-over effect on global markets.”

“In India, the vehicle sales figures will continue to fuel stock-specific moves on D-Street as investors attempt to decipher the future trend,” Shah added, “Moreover, the monthly F&O expiry in the second half of the week may cause volatility in the indices. Investors are thus advised to accumulate good stocks with strong fundamentals, free cash flows, and lower leverage over the long run while disregarding short-term difficulties.”

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