Defence stocks may be tiring after a strong charge, but PSU banks are still marching ahead, says Anand James of Geojit Investments. Together, they’ve powered the broader market’s outperformance, leaving traders wondering: is this just the opening act, or the peak of the rally?

Edited excerpts from a chat with the market strategist:

Nifty ended in the green for the third straight week. Given the positive macro backdrop, do you think that the positive momentum would continue in the week ahead?

Last week’s achievement of the 25400-600 objective, along with an evening star candle formation prompts us to look for a pull back instead of extending upside objectives right away. Favoured rest point is 24880-800. However, should slippages not stretch beyond the 25200-25000 region, we could as well be seeing a sideways move, followed by recovery attempts, though an outright penetration of 25669 is less expected.

How would you read the outperformance of the broader market in the week led by rally in real estate, defence and PSU bank stocks? Is it time to be more bullish on smallcaps?

The recent outperformance in the broader market has been primarily driven by defence and PSU bank stocks. Going into the coming week, PSU banks are expected to maintain leadership, while defence stocks appear to be approaching exhaustion levels following their strong rally.The Nifty Smallcap250 index has made several attempts since July 2024 to break above the key horizontal resistance near 19150. The index is once again approaching this supply zone, and the prevailing momentum suggests a potential retest of this level in the near term. This move is likely to be supported by heavyweight constituents such as Laurus Labs, Poonawalla Fincorp, MCX, Radico Khaitan, Aster DM Healthcare, and CDSL. Additionally, smallcap PSU banks like UCO Bank, Central Bank of India, City Union Bank (CUB), J&K Bank, and Karur Vysya Bank could further fuel the rally.

If the index successfully breaks above the 19150 resistance zone, it could pave the way for a broader upmove towards 20950, marking a significant breakout in the smallcap space.

With India VIX being at multi-year lows below 10-mark, what do you think this is signaling about the market mood? Can we read it as a signal for a bull run?

A low VIX is sign that investors are comfortable with prevailing prices and are not expecting large price moves. Historically VIX is known to have an inverse relationship with Nifty and the decline in VIX has persisted throughout September so far, with Nifty rising simultaneously. However, the extended suppression in VIX to record lows also raises the prospects of a change in volatility expectations. This event coinciding with Nifty’s approach to a significant peak also elevates the risk of a turn. However, a sharp shift from low VIX condition is rarely seen, which should prevent Nifty from a collapse.

Redington ended up among the top gainers in the week as iPhone 17 sales began in India. How would you trade the stock in the days ahead?

Tuesday’s spike helped the stock price break beyond a near one and a half month long consolidation pattern. But this has also brought the RSI to overbought conditions having pushed the price to July’s peaks. Thus both the price as well as RSI would want a period of consolidation. But as long as dips do not stretch beyond 260, expect bulls to regroup and push the stock to new peaks.

How do you read the momentum that we saw in PSU Bank stocks. Any names that would be on your watchlist?

The Nifty PSU Bank index has been consolidating within a downward-sloping wedge pattern since July. This week, it witnessed a breakout from the pattern, signalling a potential shift in trend. Supporting this bullish development, the weekly MACD has crossed above the signal line, indicating strengthening momentum and favouring further upside in the near term.

From a derivatives perspective, over 80% of the constituent stocks either saw fresh long positions or experienced short covering on Friday and on a week-on-week basis. This suggests that market participants in the derivatives segment are positioning themselves for continued gains.

We anticipate the index to move towards the 7850 level in the near term, with the rally likely to be led by key stocks such as State Bank of India (SBIN), Bank of Baroda, Punjab National Bank (PNB), Union Bank, Canara Bank (Canbk), and Bank of India.

Give us your top ideas for the week
LTFOODS (CMP: 473)
View: Buy
Target: 489, 515
SL: 449.5

The reversal that began in late August continues to show strength, with no immediate signs of exhaustion. The price has decisively moved above the Supertrend level of 435, reinforcing bullish sentiment. Additionally, the weekly MACD is on the verge of crossing above the signal line, supporting a positive near-term outlook.

We anticipate the stock to advance toward 489 and potentially 515 in the coming sessions. Traders holding long positions may consider placing a stop-loss below 449.5 to manage risk effectively.

AJMERA (CMP: 1,052)
View: Buy
Target: 1090–1108
SL: 1020

The symmetrical triangle breakout earlier this month appears to be gaining momentum, supported by a fresh consolidation breakout this week. Adding to the bullish setup, MACD exhaustion bars alongside a strong bullish Marubozu candle suggest further upside potential.

We expect the stock to move toward the 1090–1108 (weekly Supertrend) range in the coming sessions. Traders holding long positions may consider placing a stop-loss below 1020 to safeguard against unexpected pullbacks.