ICICI Securities Analyst Recommends Buying Tata Steel Shares on April 6

Market Bounces Back Amid Global Volatility

The domestic equity markets were closed on Friday, April 3, due to Good Friday. On Thursday, April 2, the main indices, Nifty 50 and Sensex, bounced back from earlier losses as the rupee strengthened following actions taken by the central bank, although diminishing expectations for a quick resolution to the situation in Iran extended the decline to six consecutive weeks.

The Nifty 50 closed 0.15% higher at 22,713.1, while the Sensex increased by 0.25% to 73,319.55 after witnessing a drop of over 2% earlier in the day. According to Dharmesh Shah, Vice President of ICICI Securities, heightened global volatility continued to weigh on equity markets, leading to another week of lackluster performance that pulled the Nifty 50 down 0.5% to settle the week at 22,713.

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The broader market mirrored this trend, declining in tandem with the benchmark. While the benchmark struggled, selective buying emerged in IT, Metals, and Defense, each advancing by more than 2%. In contrast, Pharma and Financial stocks faced profit booking.

Technical Outlook

Seven consecutive weeks of lower high-low formations indicate a sustained corrective phase, with brief rallies failing to hold. Notably, Thursday saw a potential exhaustion gap as prices hit a two-year rising trend line and staged a sharp ~600 points recovery to fill the opening gap. This price action suggests that selling pressure is tapering off.

For a trend reversal to gain confidence, the index must sustain above the short-term average placed at 23,500 and close above the previous week's high, which has been missing over the last six weeks. In the current scenario, the Nifty 50 has already corrected ~16% from lifetime highs, which hauled most of the momentum, sentiment, and breadth indicators into bearish extreme readings.

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Historical Observations Suggest a Durable Bottom

Historically, since 1996, there have been only 4 occasions where the index has given a monthly negative close for more than 4 months in a row, post which the index has staged a strong recovery in subsequent quarters. Currently, the index has corrected over 4 consecutive months.

Our constructive bias is based on the following observations:

1. Historically, such intermediate corrections got arrested in the vicinity of long-term 200 weeks EMA (barring 2001, 2008, 2020), currently placed at 21,930.
2. Over the past 25 years, there have been 8 occasions where bull market corrections got arrested within a 15-20% range with an average correction of 17%.
3. With the 16% decline (off Feb high of 26,341), the Nifty 50 has hauled the monthly stochastic oscillator into oversold territory (placed at 12).
4. On the Bank Nifty front, since Covid, there have been six major corrections that anchored around 20-22%. With a 19% correction already in place amid oversold conditions, indicating that the downside is approaching maturity, in line with historical corrective cycles.
5. In case of geopolitical events, past four decades' data suggest that price-wise median correction matures around 11%. Buying during such a panic scenario has garnered >25% returns in the next 6 months.
6. Historically, durable bottoms are formed when the market breadth indicator approaches its bearish extremes. The current reading of % of stocks above 50 and 200 SMA (Nifty 500 universe) rhymes with the historical readings where the index formed a durable bottom.

Key Monitorables

1. De-escalation of geopolitical tension
2. Cool-off in crude oil
3. RBI Policy
4. Start of Q4-FY26 earnings
5. US Inflation

Stocks to Buy This Week

Dharmesh Shah of ICICI Securities recommends buying Tata Steel Ltd. Buy Tata Steel in the range of ₹189-195. He said Tata Steel's share price target is ₹216 with a stop loss of ₹179.