The Bulls raised the benchmark indicators above their key resistance levels in July, but the gains in the last week of July were reversed. The S&P BSE Sensex and Nifty 50 rallied over 7% each in July, but the real action remains in the chosen mid & small-cap space.
The broader market indices i.e. S&P BSE Small Cap Index and S&P BSE Mid-Cap Index ended with gains of over 5 percent each, but over 100 stocks in the BSE 500 Index rallied 10-80% in July.
The S&P BSE 500 index rallied 10-80% in July, including Cadila Healthcare, PVR, Bank of Maharashtra, M&M, Dr. Lal Pathlabs, Heritage Foods, L&T Infotech, Larus Labs and others.
Experts are of the opinion that smart buying is taking place in selected quality stocks due to low performance in a wide market space. However, it is better to enter this place in a staggering way than to pay a single amount.
“Most frontline stocks may have risen excessively portraying high valuations but select mid and small caps are certainly not trading at high multiples, they are decently priced some even undervalued,” Umesh Mehta, Head of Research, Samco Group said.
“Hence, selective buying in certain pockets of the broader markets can entice investors in their search for value. A staggered buying strategy through SIPs in fundamentally strong small and mid-cap stocks is the right approach, especially when they are trading at decent valuations but buying lump sum at current is not advisable,” he said.
Smart purchases in sectors such as IT, energy, and healthcare rose more than 10 percent with three recordings. Each while selling pressure was seen in infrastructure, utilities, telecom, power, capital goods, and realty space.
“We have been maintaining a positive bias on both the sectors as they are being more of global plays i.e. IT and Pharma. Pharma has been the leader of the current up move since the start of the rally from Apr’20. After a huge underperformance over many years,” Rajeev Srivastava, Chief Business Officer at Reliance Securities said.
“IT sector has picked up in the current month with one of the largest gains of 22.4% post strong results, better management commentary from the companies and lot of large order wins from global companies,” he said.
Weakness in heavyweights like Reliance Industries and HDFC twins Headline Index – Nifty 50 is low. The Nifty has set a bullish candle on the 50 monthly charts; However, the last week of July saw some gains.
Overall, the Nifty seems to be consolidating sideways in a range. As it enters the GAP zone created due to the huge sales seen in March this year.
The above 11300-11400 levels are likely to act as a strong resistance, while experts believe that 11000-11040 will act as a key support area in a negative situation.
“On the upside 11300-11400 is the supply zone. This also happens to be the upper end of the GAP area and on the downside 11040 is the demand zone. Any significant move will be witnessed on a breakout from this trading range”. Aditya Agarwala, Senior Technical Analyst – Institutional Equities, YES SECURITIES said.
“Following two strong expires from the point of view of bulls. The Nifty could take a pause and may witness minor profit booking while broader markets may rise,” he said.
Agarwala added more the Nifty is facing resistance at the 78.6% resumption kept at 11400. This also happens as a GAP area, bears may be invited. To lower the failure index to 10800 to get out of this resistance. Therefore, the Nifty in the August series can trade with a mild weakness.