Top Stock Recommendations: Dharmesh Shah of ICICI Securities suggests HDFC Life, and Natco Pharma today

Stock Market News: Following signals from US Federal Reserve Chair Jerome Powell that interest rate cut is on the way, the domesticbenchmark indices, the Sensex and Nifty 50, began higher on Monday, tracking the lead of other Asian peers.

As of 9:15 IST, the Nifty 50 index was up 0.33% at 24,906.1. Sensex gained 0.37%, closing at 81,388.26.

According to Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, the Fed's Powell's clear announcement that the cycle of rate cuts is about to begin would give the ongoing global stock market rise even more durability. This is important from the standpoint of the Indian market since it will support the minority opinion expressed by the two independent MPC members in favour of rate reduction during the most recent monetary policy meeting.

Friday was the longest rise of the year for the domestic benchmark indices, the Sensex and Nifty 50, as they increased for the seventh straight day. The Nifty 50 index stood at 24,823.15, up 0.05%. S&P BSE Sensex gained 0.04%, closing at 81,086.21. Analysts believe that they rose around 3% over the last seven sessions due to rising betting on a US rate cut and on consistent inflows from within the country.

Following Jerome Powell's most explicit indication to date that the US Federal Reserve would start reducing interest rates in September, stocks surged broadly and bond yields fell. The result led the S&P 500 to rise 1.1%. For the first time since setting its own record in July, the Dow Jones Industrial Average closed above 41,000 points, up 462 points, or 1.1%, while the Nasdaq composite gained 1.5%.

Senior Technical Analyst Pravesh Gour of Swastika Investmart noted that while there are indications of a "soft landing" for the global economy, the Indian stock market is anticipated to follow the US stock market's advances. Stock prices would probably rise and market sentiment would improve if the Fed decided to lower interest rates.

Investors will also need to keep a close eye on changes in the global currency market and forthcoming economic data releases from the US and Japan.

Market Outlook by Dharmesh Shah, Vice President, ICICI Securities

The index started the week on an optimistic note and remained positive on all five sessions. Consequently, weekly price action formed a bull candle carrying higher high-low, indicating continuation upward momentum.

The formation of higher high-low supported by sectoral rotation signifies elevated buying demand. Going ahead, we expect Nifty 50 to trade with a positive bias in the broader range of 25,200-24,400 with global cues providing directional bias. In the process, stock specific action would prevail amid bouts of volatility owing to monthly expiry. Hence, buying on dips would be the prudent strategy to adopt as strong support is placed at 24,400.

Our positive bias is further validated by following evidences:

A) Despite global volatility, Index has maintained its rhythm of not correcting more than 5% (pricewise) and two weeks (time wise) since beginning of CY24. Key take away is that post such price/time correction Nifty 50 has tendency to surpass life highs in each of the four instances.

B) Bank Nifty has managed to close above past two weeks high of 50,800, indicating pause in downward momentum. Going ahead, follow through strength in Bank Nifty would drive higher towards 52,800 which in turn provide impetus to Nifty 50 as Bank Nifty carries 32% weightage in Nifty 50.

C) The current up move is backed by improvement in market breadth as currently ~60% stocks of Nifty 500 universe are trading above their 50 days Average compared to last week’s reading of 48%.

D) Global headline indices, led by US are in steady uptrend and S&P 500 remains within 1% of life highs. Steady global markets would act as cushion.

On the sectoral front, Consumption, IT, Pharma to outperform while PSU banks, Metal and Capital goods companies provide decent reward-risk proposition after recent corrective phase.

The broader market has undergone healthy retracement as Nifty Midcap and small cap have formed a higher base formation above 50 days EMA that has set the stage to challenge All Time High. Thus, focus should be on quality stocks with strong earnings.

The formation of higher high-low on the weekly chart makes us revise support base at 24,400 as it is confluence of 20 days EMA coincided with 61.8% retracement of ongoing up move (24,100-24,867).

Top Stock Recommendations

1. Buy HDFC Life Insurance Company Ltd in the range of ₹700-728 for the target of ₹810 with a stop loss of 654.

2. Buy Natco Pharma Ltd in the range of ₹1,510-1,555 for the target of ₹1,700 with a stop loss of ₹1,425.

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 23/08/2024 or have no other financial interest and do not have any material conflict of interest.

The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.