The month of July saw a good bounce back not only in the Indian market but most of the international markets. Nifty has performed in line with or marginally better than most of the international markets.
In a recent report, brokerage house Nirmal Bang highlighted that the recent up-move has taken the valuation to the upper end of the Pre-Covid level.
"Though it went up very high last year, we feel considering the status of the world economy, increasing interest rate environment and increasing downgrade of corporate earnings by analysts, the valuation range will revert back to pre covid level," it predicts.
The current valuation leaves limited scope for further up-move from the current level, added the brokerage. As such it believes the upside from the current level in Nifty is limited and the market may remain in a range of 16,300-17,400 in the August Series.
The recent run-up in the equity markets in various markets was mainly driven by corporate results which were not impacted to the extent the market had priced in on the back of the Central bank’s hawkish policy stand and benefiting from some correction in commodity prices, said the brokerage. The bounce back is also driven from the oversold zone, it added.
Nirmal Bang also pointed out that corporates that are focused on the domestic economy are comparatively doing well as India will continue to grow at the fastest pace among larger economies and the recent correction in various commodity prices is supporting margins.
The brokerage further noted that in Nifty, almost 73 percent of weightage is from companies that are deriving their earnings majorly from the domestic economy.
However, now after the surge last month, the brokerage noted that the growth expectations are coming down for most of the economies led by the withdrawal of liquidity support and increasing interest rates by central banks, it said.
"Even the expectation of recession in large economies like Europe and US has increased. Energy prices of Crude oil and Thermal coal continue to remain high impacting the consumer spending power directly and higher production cost impacting indirectly," cautioned the brokerage.
Technical Outlook
As per the brokerage, the Nifty witnessed a pullback rally in the month of July. The rally in July was taken over by the Bulls and the sentiment on the D-Street was positive, it said.
The Nifty is trading above 200-DMA, suggesting a positive view for the near term, noted Nirmal Bang, further adding that any move above the 17,200 level on a closing basis may extend the pullback rally towards 17,400.
Going ahead, it feels that the Nifty has support at the 17,020-mark provided by 200-DMA. However, if the Nifty fails to hold the support of the 17,000-mark, then the profit booking is likely to witness towards 16,500-16,200, cautioned the brokerage.
It believes that after a pullback rally, markets may witness profit booking at resistance levels as the Nifty has witnessed a stiff rally from 16,000 towards 17,200. A breather of a few days from here on will, in turn, make the market healthy, it added.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
