Dharmesh Shah, the Technical Head at ICICI Securities, has shared his outlook on the market and suggested that investors should accumulate large-cap IT stocks in a staggered manner from a medium-term perspective. According to Shah, the Nifty IT index has already seen a 33% price correction from its peak and is expected to form a base and consolidate over the next few quarters. This period of consolidation is considered necessary for a healthy market rebound, paving the way for a potential rise toward the 25,000 mark in the coming months.
Nifty Faces Volatility Amid Geopolitical Concerns
Shah mentioned that while the Nifty 50 index has recently formed a durable bottom over the past two months, the market is likely to experience some volatility in the upcoming weeks, influenced by geopolitical concerns. He believes that the current market correction will help the index form a higher base, after a 12% rally in the last three weeks. Shah emphasized that such a period of cooling off is essential for a more stable market, which could potentially set the stage for an upward movement toward 25,000.
The market has witnessed similar volatility in the past, particularly during instances like the Kargil War, the 26/11 attacks, and the Pulwama attack. Historical data suggests that after such escalations, the market tends to form a significant bottom once the anxiety around the events settles, offering a good opportunity for buying in the following months.
Midcap and Smallcap Indices Likely to Hold Their Support Levels
Shah expressed confidence that both the Nifty Midcap and Smallcap indices are likely to hold their previous swing highs. The Midcap index has outperformed the Nifty benchmark in the recent week, settling with a 2% gain compared to the benchmark’s 1% gain. He sees the recent pullback in both indices as a necessary breather after their sharp rallies of 18% and 21%, respectively. With earnings season approaching, Shah expects stock-specific action to continue, and volatility to persist in the short term.
However, he is optimistic about the broader structure of the Midcap and Smallcap indices, believing that they are likely to maintain their upward trajectory despite the ongoing volatility.
The Nifty Auto index, however, may experience a short-term correction due to recent developments concerning US tariffs. Shah warned that the short-term sentimental indicators for the sector have entered the overbought zone, signaling a potential pullback in the near future. Nevertheless, stock-specific actions in the sector are expected to continue during the upcoming earnings season.
