Trade Setup for February 13: Nifty may remain in sell-on-rise mode below 21,850

GIFT Nifty is trading with a premium of more than 35 points from Nifty Futures’ Monday close, indicating a start in the green for the Indian stock market on Tuesday.

The domestic stock market failed to hold opening gains on Monday, weighed down by broad-based profit booking, while small- and mid-caps extended their slide on rising concerns over high valuations. The midcap index fell more than 2% as the PSU basket witnessed profit booking.

The NSE Nifty 50 index settled 0.76% or 166.45 points lower at 21,616.05, while the S&P BSE Sensex closed 0.73% or over 500 points lower at 71,072.49.

Trade Setup for February 13: Nifty may remain in sell-on-rise mode below 21,850

The bearishness in the mid-cap and small-cap space is even more severe. However, these corrections also offer the opportunity to accumulate good-quality stocks, believe Sheersham Gupta, Director and Senior Technical Analyst at Rupeezy.

G Chokkalingam of Equinomics Research said the risk of significant correction in small- and mid-caps is steadily growing due to extremely elevated valuations.

Investors now await India’s inflation reading, due at 5:30 pm on Monday. Retail inflation eased to a three-month low of 5.10% in January on slowing food price rises.

Meanwhile, foreign investors were net buyers, buying ₹127 crore, in the cash market on February 12, while domestic investors also bought ₹1,712 crore in equities.

What Are The Experts Saying?

According to Vinod Nair of Geojit Financial Services, an uptick in exchange margin requirements caused a decrease in positions, primarily in mid and small caps. Aside from the pharma and IT sectors, selling was widespread, with notable struggles seen in PSU banks.

“The premium valuation gap between mid to large caps has notched to its all-time high. Despite a robust economic forecast, corporate earnings are expected to slow due to moderated operating margins. It is going to be a challenge for the broad market to sustain the premium valuation. Large caps are predicted to excel amid consolidation,” Nair said.

“This is another bout of profit booking and it was always on the anvil,” said Siddharth Sedani, head of equity product and advisory support at Anand Rathi Financial Services, adding that the “RBI’s decision to not relax its monetary policy stance also disappointed markets.”

Nifty remains range-bound

While Nifty remains range-bound with 21500 serving as a strong support, today’s struggles in the broader markets indicate a likelihood of breaking these levels, potentially opening the path downwards towards 21350 – 21250 in the upcoming sessions. Conversely, resistance levels have shifted lower to around 21800 – 21850, having acted as barriers in the previous two session, said Rajesh Bhosale, Technical Analyst at Angel One.

Bhosale advised traders to reduce long positions during any price rebounds and to refrain from bottom fishing until clear signs of strength emerge.

According to Nagaraj Shetti of HDFC Securities, a long bear candle was formed on the daily chart that placed it at the edge of the downside breakout of the crucial support of up trend line at 21600 levels.

“The weakness in the benchmark Nifty was accompanied by a deep cut in the broader market indices like midcap and small-cap segments on Monday. This is not a good sign. The short-term trend of Nifty is negative. The benchmark and broader market indices are now placed to show further weakness in the near term. The next lower support for the Nifty is at 21200-21150 levels for this week. Immediate resistance is at 21800 levels,” Shetti said.

Rupak De, Senior Technical Analyst at LKP Securities said the Nifty declined further after a consolidation breakdown on the hourly chart, indicating an increase in pessimism. “The daily chart shows the index forming a lower top, signaling diminishing bullish sentiment. The momentum indicator aligns with this bearish outlook, displaying a crossover. The Nifty might remain sell on rise as long as it remains below 21850. On the downside, support is situated at 21500.”

What Do The Nifty Bank Charts Indicate?

The Bank Nifty index experienced continued dominance by bears, with clear rejection observed at higher levels, said Kunal Shah, Senior Technical & Derivative Analyst at LKP Securities.

“Closing below the near-term support zone of 45000 signaled bearish sentiment. The index faces immediate resistance at 45100, and a breakthrough could trigger short-covering moves towards 45500 levels. Conversely, the immediate support is at 44800, and breaching this level may intensify selling pressure towards the 44000 mark,” Shah said.

According to another analyst, for the first time in over three months, the Nifty Bank closed below its 200-DMA landing the banking index in a bearish territory. On the daily timeframe, Nifty Bank formed a bearish engulfing candle breaking the crucial level of 45,000. 44,500 is the crucial support to look out for in Nifty Bank. On the upside, the zone of 45000 – 45250 is likely to offer huge resistance.

What Are The F&O Cues Indicating?

Nifty 50’s February futures added 1.4% or 1.66 lakh shares in Open Interest on Monday. They are now trading at a premium of 81.80 points compared to 60.10 points earlier. On the other hand, Nifty Bank’s February futures added 3.4% or 1.06 lakh shares in Open Interest. Nifty 50’s Put-Call Ratio remains at 0.85 as against 0.99 earlier.

Nifty 50 on the Call side for Feb 15 expiry:

For this week’s weekly options expiry, the Nifty 50 Call strikes between 21,700 and 21,900 have seen Open Interest addition.

Nifty 50 on the Put side for Feb 15 expiry:

On the Put side though, the Nifty 50 strikes of 21,400 and 21,650 saw some writing, as did the 21,600 strike for this week’s expiry.

F&O ban

Aditya Birla Fashion and Retail, Bandhan Bank have entered the F&O ban from today’s session.

Zee Entertainment Enterprises Limited, Ashok Leyland, Aurobindo Pharma, Biocon, Balrampur Chini, Delta Corp, Hindustan Copper, India Cements, Indus Towers, PNB, and SAIL continue to remain in the ban.

UPL is out of the F&O ban list.

These are the stocks to watch out for ahead of Tuesday’s trading session:

– JSW Energy arm JSW Neo Energy gets letter of award (LoA) for 500 MW wind power project from Solar Energy Corporation Of India (SECI).

– Suzlon Energy has appointed Vivek Srivastava as CEO – WTG Division with effect from February 12, 2024.

– Aurionpro Solutions seeks to raise up to ₹200 crore via issue of 9.02 lakh shares at ₹2,215 per share via preferential allotment.

– Coal India: The country’s largest coal mining company posted a profit at ₹9,093.7 crore for the third quarter of FY24, rising 17.8₹ over a year-ago period, backed by higher other income and a healthy operating margin with a fall in input costs. Revenue from operations grew by 2.8% YoY to ₹36,154 crore for the quarter. The state-owned entity announced an interim dividend of ₹5.25 per share.

– SAIL: The state-owned steel company has reported consolidated net profit at ₹423 crore for the October-December period of FY24, falling 22% on a high base as in Q3 FY23, there was an exceptional gain of ₹298 crore. Revenue from operations fell 6.8% year-on-year to ₹23,349 crore for the quarter.

– Lemon Tree Hotels: The company has signed a license agreement for a new hotel in Marpalle, Telangana, under its brand, Lemon Tree Resort. This hotel will be spread over 5 acres and have 50 rooms, including 14 villas, of which 5 will be water villas. This hotel is expected to be operational in FY27.