Indian markets are flirting with all time high levels. Nifty is within striking distance from all-time high. Broader Market breadth is improving and stock specific actions have begun. India VIX at around 12 is suggesting a benign environment. World markets are still settling after a steep fall in the month of March, 23 while S&P and Dow Jones are in consolidation phase, NASDAQ has started out performing after a decent fall. The Federal Reserve did a 25-basis point hike in the interest rate in the recent meeting, 10th in a row taking Fed rate at 5-5.25%.
Inflation is also around 5%. After this rise Interest rates are back to 2007 levels. Liquidity conditions are tight and all leading indicators like copper prices, Crude prices are suggesting a slowdown and possibility of recession in the western part of the world. Dollar Index (DXY) has bounced back from 100-101 levels to around 104 now. Any rise above 106 level might see all round selling in risk assets like emerging market equities.
Gold after hitting an all time high at around USD 2067 retraced a bit and is currently hovering around USD 1950 levels. So either gold will scale new highs or DXY will cross 106 opening up an upside till 116 level. What will happen first? Your guess is as good as mine. So, things are very delicately poised so far as international markets are concerned.
Coming back to Indian markets, NIFTY daily, weekly, monthly charts are suggesting positive momentum. RSI on daily, weekly and monthly charts are in bullish range and therefore Nifty may further move up in the times to come. The ultimate target of Nifty is in the range of 21000-22500 in the next 12- 18 months, suggesting 12-15% rise from the current levels on earnings front 12 months trailing EPS is ₹852 and projected EPS of around ₹940 in FY 2023-24 is pointing towards 21000 levels presuming PE levels of 22.
The rise may be straight up or after a decent retracement from the current level depending on various events that may play out in the coming quarters. On retracement the Nifty should not break 16800 levels on the downside or else all the hypotheses will be revisited. CMP of Nifty is around 18500 levels
On further dissecting sectors of Nifty, we found a pretty interesting scenario.
- Nifty IT has come out of bearish range after bottoming in April 2023. It has been under performing Nifty since January 22. Daily RSI is at 67 suggesting recent weakness is over. CMP is at 29400, there are multiple bottoms at 26200 suggesting a strong support and resistance is placed at 31600. Relative Strength had given sell at 34400 and currently also in a sell Mode.
- Nifty Pharma index made a top of 14938 in Oct,2021 and formed a bottom at 11500 in March,23. Relative strength index in daily, weekly and monthly are in bearish mode and relative strength study also are suggesting consolidation at current level of 12678.
- Nifty FMCG is scaling new highs every day and in an uncharted territory. It's outperforming Nifty and it is very bullish in all time frames.
- The Nifty Metal index is currently placed at 5900 levels after forming a double top at 6850 levels. It is marginally underperforming Nifty 50 and is in consolidation phase.
- The Nifty Auto Index is at an all time high and very strong in all time frames.
So in the upcoming rallies, readers are advised to stay invested in FMCG and AUTO sectors and stay away from IT and Pharma sectors.
What can spoil the party?
- Weak monsoon due to El-nino conditions.
- DXY rising above 106
- Serious recession or depression in the rest of the world
- Further Bankruptcy in the western part of the world in banking sector
- Some ugly turn to the ongoing Russia-Ukraine War
- Unfavourable environment for the Modi Government preceding 2024 general elections impacting prospects of reelection.
So, in nutshell, risks and returns are evenly poised with the positive bias. Indian macros such as inflations, interest rate and growth projections are all favouring a pre-election rally and India seems to be ‘An Oasis in a desert’ kind of situation. Keeping my fingers crossed, a good monsoon, pre- election rally and prospect of a repeat of MODI government post 2024 elections, we may see Nifty scaling decent highs.
Rakesh Pujara is a smallcase manager