In Charts: What Technicals Are Saying About Indian Markets

“The market mood remained exuberant on hopes of a speedy economic recovery and expectations of further fiscal and monetary support. Strong foreign inflows led by high global liquidity, and a decline in dollar, too, fueled the market,” said Sanjeev Zarbade, vice president (PCG research) at Kotak Securities. “On the economy front, the Reserve Bank of India’s balance sheet expanded 30% year-on-year to Rs 53 trillion (Rs 53 lakh crore) as on June 30, foreign portfolio investors bought equities worth $631 million over the past five trading sessions and domestic institutional investors sold $353 million worth of equities.”

• In the week ended Aug. 28, the S&P BSE Sensex gained 2.7% to close just shy of the 39,500 mark, while the NSE Nifty 50 gained 2.4% and closed at 11,647.
• The broader markets performed in tandem with the benchmarks as the Nifty Midcap and Smallcap indices advanced 2.3% and 3.7% respectively.
• Most sectors, barring consumer goods and metals, rose, with the Nifty Bank index recording its highest weekly gain in nearly three months.

“The intermediate resistance, as per weekly and monthly charts, has been broken on the upside at 11,500 levels, and the Nifty closed just above it. Apparently, this action could signal upside breakout of the hurdle, but market’s internal movement on the daily chart was subdued with range-bound movement,” said Nagaraj Shetti, technical research analyst at HDFC Securities. “The near-term trend of the Nifty continues to be positive. A sustainable movement for the next week is likely to pull Nifty towards the next upside levels of 12,000 and higher for the coming week.”

The Big Picture

The expectations that the global economy will continue to recover and ample policy support will remain in place further propped up the rally in equity markets across the world.

“Stocks seem to be enjoying the best of both worlds as they are seeing signs of improving economic momentum, while monetary stimulus continues to be very accommodative, and more fiscal stimulus is likely on the way,” said Yousef Abbasi, global market strategist at StoneX in a note. “Action by the Fed likely provides risk-assets with the assurance they need—easy money is here to stay.” Chair Jerome Powell on Thursday outlined a new approach to setting U.S. monetary policy, under which, the Fed will sometimes allow inflation to run above the 2% target to make up for prior undershoots, and allow unemployment to run lower than officials had previously tolerated.

Still, technical analysts said India’s equities are best placed compared to global and Asian peers, and are set for a sustained outperformance.

“The Nifty 500 has entered the leading quadrant when benchmarked against the MSCI World Index. It’s joined by the Shanghai Composite Index that has seen a sharp jump in momentum following its move into the weakening quadrant,” said Milan Vaishnav, technical analyst and founder of Gemstone Equity Research. “Other Asian markets like Straits Times Singapore, Nikkei 225 and Hang Seng continue to languish in the lagging quadrant. Even the DAX which slipped into the weakening quadrant and the FTSE appear to be losing their relative momentum, making India one of the best placed from a global standpoint.”

Top-Down Approach

As the Nifty 500, an indicator of the broader market trend, remains favourably placed, technical analysts focus on specific sectors and stocks to identify long and short positions.

“The Nifty IT, Auto and Metals indices remain firmly placed in the leading quadrant and could relatively outperform the broader market over the coming weeks,” said Vaishnav. “The Nifty Financial Services, Private Banks, PSU Banks, Realty and Media are placed in the improving quadrant and appear to be maintaining their relative momentum against the broader market. They are also likely to stay resilient and improve their performance over the coming days.”

But defensive sectors such as fast-moving consumer goods and pharma may see some underperformance.

“The Nifty Infra and Pharma are placed in the weakening quadrant and are likely to underperform the broader market. The FMCG and consumption index, which are in the lagging quadrant, look set for a period of consolidation, barring any stock-specific performance in the short term.”

Stock-Specific Performance

Technical analysts are most bullish on financial stocks.

Bajaj Finance Ltd., Au Small Finance Bank Ltd. and Power Finance Corp. can relatively outperform the broader market. “Bajaj Finance has moved into the leading quadrant, while AU Bank remains firmly placed in the improving quadrant. Also, PFC has seen a sharp jump in momentum and moved into the improving quadrant,” said Vaishnav.

On the other hand, Gujarat State Petronet Ltd., Mahanagar Gas Ltd. and Balkrishna Industries Ltd. may show relative underperformance against the Nifty 500. “GSPL and MGL have moved further into the lagging quadrant, indicating a sharp drop in its relative strength and momentum. Also, Balkrishna remains placed in the weakening quadrant and appear to lose its relative momentum,” Vaishnav said.