ICICI Securities Analyst Recommends Buying Eternal Shares on June 8

Indian Equity Benchmarks End Marginally Lower as Investors Turn Cautious

The Indian equity benchmarks, Sensex and Nifty 50, closed marginally lower on Friday after the Reserve Bank of India (RBI) revised its growth projections lower while raising its inflation outlook for FY27. The Sensex fell 116.67 points, or 0.16%, to close at 74,243.34, while the NSE Nifty 50 slipped 49.85 points, or 0.21%, to settle at 23,366.70.

The Sensex remained volatile throughout the session, moving in a range of more than 700 points between its intraday high of 74,717.57 and low of 73,988.75. Market experts attributed the subdued sentiment to persistent foreign portfolio outflows, geopolitical uncertainties, and weak cues from Asian markets. Investors also reacted to the RBI's latest policy assessment, which highlighted a more challenging macroeconomic environment.

The market outlook remains cautious, with the Nifty 50 extending losses over the second consecutive week. Equity benchmarks have been driven by a lack of clarity on geopolitical developments. The Nifty 50 settled at 23,367, down 0.75%. Midcap stocks are seen to profit from the two-week up move, while small-cap stocks remained flat.

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Sectorally, financials remained at the forefront, while FMCG and realty continued to underperform. The index extended its broad-range consolidation at 24,000-23,100 for the fourth consecutive week, as stock-specific activity continued to track better-than-expected earnings season. As a result, weekly price action formed a bear candle carrying a lower high-low, indicating an extended breather.

The market is expected to prolong the consolidation in the 24,000-23,100 zone. However, it is essential to highlight that the corrective move Index has approached the lower consolidation band at 23,100 and is now forming a base. A decisive close above the previous session high of 23,500 would be required to trigger a reversal toward 24,000 in the coming weeks.

Structurally, over the past seven weeks, the Nifty 50 has corrected ~6% on the backdrop of three weeks 11% rally. During this phase, the market has largely priced in a host of geopolitical and domestic headwinds, establishing a strong foundation for the next leg of the up move. Hence, focus should be on accumulating quality stocks with strong earnings, as strong support is at 22,700, which is an 80% retracement of the April up move.

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Dharmesh Shah, Vice President of ICICI Securities, has a constructive bias on the index based on the following observations:

• Despite ongoing volatility, Bank Nifty defended May lows and is now showing early signs of structural revival.
• Exempting Foreign Portfolio Investors (FPIs) from taxes on Indian Government Securities (G-Secs) indirectly benefits the equity market by stabilising the rupee and lowering domestic borrowing costs. It is also positive for PSU banks due to a fall in bond yields as they are generally big holders of Government securities.
• Broader market continues to outperform the large caps, as evidenced by the rising ratio line of Nifty 500 vs Nifty 100.
• Seasonality favours buoyancy in the broader market. Over the past one decade, June has been a positive month for Nifty Midcap and Smallcap on 70% of the time, garnering average gains of 2.5% and 3.5%, respectively.

Key monitorable factors include:

• Inflation: Upcoming US and India inflation data.
• FII Inflows: Nasdaq, Kospi, and Taiwan indices are witnessing negative divergence on the daily chart, indicating an exhausted rally.
• The pair of USD/INR has seen good correction after RBI’s move of exempting FPI from tax on any interest and capital gains on investment in Indian Government Securities.
• Crude Oil: Any geopolitical de-escalation will cool oil prices, boosting Indian equities.

Recommendation: Buy Eternal

Dharmesh Shah of ICICI Securities recommends buying Eternal in the range of ₹249-255 with a target price of ₹272 and a stop loss of ₹342.