In Charts: What Technicals Are Saying About Indian Market

India's equities snapped their three-week losing streak as investors shrugged off geopolitical tensions and weak global cues.

The Nifty 50 Index advanced 6% in the week ended May 29 to close at 9,580.30. The broader market, too, moved in tandem as the NSE Nifty Midcap and Smallcap indexes rose 5% and 4%, respectively. All sectoral gauges gained as well, led by financials (up 11.7%), Realty (up 10.1%) and Metals (up 9.9%).

“The weekly price action resembles a morning star candle as the index witnessed follow-through strength to last week's hammer-like candle, said Dharmesh Shah, Head – Technical, ICICI direct. That indicates the benchmarks have concluded their second phase of correction.

“An elongated upmove, supported by improving market breadth, indicates a broad-based participation, boding well for durability of the ongoing uptrend. This makes us confident that the index would resolve higher and eventually challenge the psychological mark of 10,000 in coming weeks.”

With the headline indices expected to trade with a positive bias, technical analysts remain focused on specific stocks and sectors going into the next week.

The Relative Rotation Graph, used to gauge relative strength of equities against a common benchmark and each other, suggests relative strength in select Nifty 50.

Reliance Industries Ltd., Britannia Industries Ltd., Adani Ports & Special Economic Zones Ltd. and Bharti Infratel Ltd. are set to relatively outperform the Nifty 50.

While Reliance and Britannia are firmly placed in the leading quadrant on the Relative Rotation Graph when benchmarked against the Nifty 50, Adani Ports and Bharti Infratel, currently in the improving quadrant, are also seen firmly building up on their relative momentum and moving towards the leading quadrant, according to Milan Vaishnav, CMT, MSTA, technical analyst and founder of Gemstone Equity Research.

On the other hand, select banks and non-bank lender stocks can be seen to relatively underperform.

“Financials may have played some catch-up over the previous days but speaking on a relative note, they will continue to underperform the Nifty,” Vaishnav said. “Bajaj Finance Ltd., Bajaj Finserv Ltd. and State Bank of India are among the financial stocks and Tech Mahindra Ltd. from the IT space are languishing in the lagging index and are likely to relatively underperform the benchmark index.”

Telecom stocks have been focus over the last one year because of regulatory issues. A slew of deal over the last couple of months, however, has sparked a renewed interest into the sector.

According to Tom Bruni, CMT, technical analyst at All Star Charts, an analysis of equal-weighted index of the telecom sector suggests money may continue flowing into the sector.

“The equal-weighted telecom index approached its 2013 low in April as momentum diverged positively, suggesting sellers were becoming exhausted as prices tested a potential long-term support level,” Bruni said. “Now that prices have confirmed this level as support, we've transitioned from a downtrend to a sideways trading range… which is the first step in a successful bearish to bullish trend reversal. While we don't expect this transformation to occur overnight, it is certainly encouraging action so far.”

“Let's look at the performance of the custom telecom index relative to the Nifty 500. It is observed that after retesting its low of November last year, the index has sharply rebounded and breached its downward sloping trend from 2018. The Relative Strength Index, too, is seen indicating a strong bullish divergence,” Bruni said. “This is a big development and suggests that we should continue erring on the long side of telecom stocks as a group. Clearly, Bharti Airtel is the leader, but we shouldn't sleep on its peers that are perking up as well.”

Disclaimer: The equal weighted custom index of six stocks includes Bharti Airtel Ltd., Vodafone Idea Ltd., Bharti Infratel, Sterlite Technologies Ltd., ITI Ltd. and HFCL Ltd. An equal-weighted index is given preference here as market cap weighted index would skew too heavily in favour of large stocks and often mask the underlying behaviour of the index – All Star Charts Team