Indian equity markets rose in six of the last eight months. But that masks the volatility as the Nifty 50 index first tumbled in its worst selloff in more than a decade because of the pandemic in March, before wiping out all the losses in the next eight months to hit a new record high.
CK Narayan, founder of Chart Advise, however, sees the upside for Nifty 50 capped at 13,270 points.
“Based on a combination of three to four different swings from the past, we arrive at a conservative target of 13,000 to 13,270 for Nifty in the immediate future,” Narayan told BloombergQuint’s Niraj Shah during the BQ Edge webinar. The reason for such a “modest” target, according to Narayan, is the weakness in the momentum indicators and the potential rebound of the dollar.
“All the three lines in the directional movement index are seen languishing somewhere near or slightly above the neutral area, which is very intriguing given that we’ve seen such a consistent rise,” he said. Typically, for a trend to continue, it needs to be backed up with momentum, which according to Narayan, is a bit “mixed” currently.
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Historically, the Nifty and the dollar have had an inverse correlation. That is, the Nifty is seen moving higher with the weakness in dollar. Narayan expects the dollar to make a comeback, which could see the Nifty come under pressure. “Sooner or later, the dollar is going to make a comeback on various reasons which govern the currency and, therefore, I feel that the upthrust that we are seeing in the Nifty may not really last too long.”
Healthcare and technology stocks have returned the best gains since the Covid-19 pandemic hit the world. The Nifty IT and the Nifty Pharma indices have surged 88% and 74%, respectively, since the March 23 low. That compares with a 65% gain for the Nifty 50.
“The IT and pharma stocks have performed very well but there is a possibility for the moment that there could be some rebalancing or shift in focus to other sectors,” Narayan said. “But given the way that the world has changed (post-covid), we believe these two sectors will continue to outperform and be among the big winners in 2021.”
Metals and Realty are the other sectors Narayan is bullish on for the upcoming year. “Nifty Metals has breached its three-year trendline; increase in steel prices are some of the key tailwinds for the sector. So, metals is one sector you may want to concentrate on in 2021,” Narayan said. The realty index has been in the wilderness for nearly 12-13 years now, he said. Recently, there have been several changes in the sector and fall in interest rates is among the key positives, he said.
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