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Nifty Pharma Slips 1%: Time to Book Profits?

Updated on: Aug 27, 2024, 5:24 PM IST
it encountered resistance at the upper end of the rising channel, leading to a correction of 1.6% from it's all-time high. Index is down by nearly 1%, hitting a fresh 5-day low.
Nifty Pharma Slips 1%: Time to Book Profits?
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One sectoral index that has caught the attention of market participants in 2024 is the Nifty Pharma index. Despite market volatility and recent news flow creating discomfort among investors, this index has managed to deliver an impressive 30% gain in 2024. The Nifty Pharma index has significantly outperformed the broader Nifty 50 index, which has delivered a return of 11.16% over the same period.

Nifty Pharma’s Stellar Performance in 2024

The Nifty Pharma index has been on a remarkable upward trajectory in 2024, consistently delivering gains despite the challenges in the broader market. This outperformance has been driven by strong fundamentals within the pharmaceutical sector, including robust earnings reports, new drug approvals, and increased demand for healthcare products and services. The index has become a favorite among investors looking for stability and growth in an uncertain market environment.

Technical Analysis: Higher Highs and Higher Lows

From a technical perspective, the Nifty Pharma index has been making higher highs and higher lows since the lows of June, which is a clear sign of an uptrend. Recently, the index hit a fresh all-time high as it moved above the 22,300 level. However, it encountered resistance at the upper end of the rising channel, leading to a correction of 1.6% from its all-time high. As of Wednesday, the index is down by nearly 1%, hitting a fresh 5-day low.

This pullback has been primarily driven by declines in key pharmaceutical stocks such as Divis Laboratories, Dr. Reddy’s, and Torrent Pharma. These stocks have exerted downward pressure on the index, leading to the recent correction.

Key Support Levels to Watch

Despite the recent dip, the Nifty Pharma index still holds strong support levels that could provide a cushion against further declines. The index has support in the region of 21,670 to 21,538, which is a confluence of the lower end of the rising channel pattern and the important short-term moving average of the 20-DMA.

It’s worth noting that since the June lows, the index has twice taken support around the 20-DMA in June and July and has continued its upward journey. This indicates that the 20-DMA is a critical level to watch, as it has historically acted as a reliable support level for the index.

Strategy: Booking Profits or Waiting for a Pullback?

Given the recent correction and the index’s strong technical support, investors are faced with a crucial decision: Is it time to book profits, or should they wait for a potential pullback to enter the market?

For those who have benefited from the rally in the Nifty Pharma index, booking partial profits at this stage could be a prudent strategy, especially considering the index’s recent volatility. However, for those who missed out on the initial rally, a pullback near the support levels around 21,670 to 21,538 could present a good opportunity to enter. 

Investors should focus on selecting stocks within the index that are exhibiting relative strength and have strong fundamentals. These stocks are likely to outperform during any potential recovery, offering attractive entry points for long-term gains.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.

Published on: Aug 14, 2024, 4:27 PM IST

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