Market benchmark Nifty vaulted almost 2% in morning trade on October 14, following strong gains in the S&P 500 index even though the inflation numbers for September came slightly higher than expectations.
Analysts believe since the market was already factoring in elevated inflation, short covering from an oversold position shot up the market.
"The uncanny ability of the market to surprise was in full flow yesterday when the S&P 500 shot up by 5% from the day’s lows despite the September CPI inflation numbers coming slightly higher than expectations. Such sharp rallies happen due to market positioning," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
"The market was oversold on expectations of higher inflation and the consequent continuation of the hawkish Fed stance. This oversold market positioning triggered short covering resulting in an incredible 1400 up move in the Dow from its low levels. Similar short covering and sharp rallies can happen in India too," Vijayakumar added.
However, such rallies are unlikely to sustain and Nifty may not be able to breach 18,000 by the year-end thanks to rigid inflation, aggressive rate hikes and impending inflation in the US and Europe.
"The big question is regarding the durability of this rally. Under the present unfavourable global macro construct, the rally is unlikely to sustain beyond a level," said Vijayakumar.
The Diwali & year-end target for Nifty
Analyst: Arijit Malakar, Head of Research - Retail, Ashika Group
Indian market is expected to remain volatile in the near term amid the rising interest rates in western countries.
Rising US bond yields are putting pressure on equity assets and emerging markets witnessed the flight of foreign capital.
India also witnessed FIIs outflow from equities though the intensity of selling was comparatively less than in other emerging markets.
Indian market outperforms other markets on the back of stable government policies and a steady recovery in the economy.
However, the direction of the market will be determined by the Q2FY22 earnings, the US Federal reserve's stance on interest rates and the global geopolitical situation.
"Nifty can end the year in the range of 16,000-17,500," said Malakar.
Analyst: Mehul Kothari, Assistant Vice President, Technical Research, Anand Rathi Shares and Stock Brokers
At this point, Nifty is hovering in the middle of a smaller range of 16,700 – 17,450. A breakout or a breakdown from the range might decide where the index would be at the time of Diwali.
"Even on the optimistic side, we don’t see Nifty going beyond 18,000 by Diwali; on the downside, 16,200 – 16,000 might have a strong base," said Kothari.
On the whole, markets are like to remain uncertain and volatile in the calendar year as global issues would keep haunting domestic sentiments.
"Going by the levels, if 16,700 remains unbroken then we could be near an all-time high by the end of this year. However, this does not mean that the index would stay there. One leg of a sharp correction is still expected and we need to see whether it will come from higher levels or we will directly break 16,700 support. In short, we don’t expect any unidirectional move in the coming months," said Kothari.
Analyst: Rahul Goud, Research Analyst - Equity Research, CapitalVia Global Research
The breadth of gains across equities and indices, at least in the short term, gave investors hope that the Nifty may keep moving upward while also sparking speculation about a new peak as Diwali draws closer.
"We anticipate that the 100-day simple moving average (16,700) will likely operate as support in the near term, and we have targets of 17,600 by Diwali, allowing traders to purchase Nifty at its present level of 17,060," said Goud.
Given the global macroeconomic statistics, the market will be influenced over the next three to four months by the increasing dollar, the European energy issue, and inflation data.
Traders anticipate that the market might trade between 16,500 and 18,000 until the year's finish.
"Before the end of the year, we advise traders to purchase the Nifty at the lower end of the band, around 16,750, and book profits at approximately 16,900–18,000 levels," said Goud.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of MintGenie.