The Next Couple Of Weeks Are ‘Very Important’ For Indian Market: Gautam Shah

“The next couple of weeks are very important because we are about to cross a fragile bridge—the level of 10,500 to 10,700 on the Nifty,” the founder and chief strategist at Goldilocks Premium Research told BloombergQuint. “If we can cross this bridge, we are good for much more upside. But I would say the chances of a turnaround from here are quite high.”

The Nifty 50 rose to its highest in more than three months at 10,553 on June 24. But the benchmark has run into multiple technical resistance points at those levels, which Shah said, could act as a key reversal.

“Around 10,550, the Nifty is facing resistance of the upward rising trendline, coupled with the 200-day exponential moving average. And this level happens to be 61.8% retracement of the entire fall (from 12,430 to 7,511),” he said. “We will wait for the price action to confirm a reversal. A close below 10,280 would be the first indication of weakness. Thereafter, a break of 10,000, which I believe is possible eventually, can open a 10% or larger fall.”

A key factor for this underperformance, according to Shah, could be banking and financial stocks. “After the fall from around 32,500, the Nifty Bank has gone into a sideways trend. While the index has done well in recent months, the subsequent rise is actually very small (in comparison to the fall) and has faltered at the first resistance of 31.8%,” he said.

These, he said, are clear indications of weakness and will not help markets sustain at higher levels. “The chance of a breakdown below 20,600 is very high and if that breaks, then Nifty Bank can actually revisit the lows of March.”

Market Volatility

The India Volatility Index—the fear gauge that tracks investors’ perception of volatility for a month ahead—is at an unusually high level despite the market rally. This, according to Shah, could be an indication of the next bear market phase.

“In the last five years, whenever the market falls the VIX has topped out around 28 to 30. In the recent fall, however, the India VIX has rallied to 88 but has come off and is now taking support at 28-30 levels,” Shah said. “If this indeed was a genuine reversal or rally, the India VIX should have gone back below the levels of 25.”

Focus On Pharma

The Nifty Pharma Index has rallied more than 60% from its low in March to touch the highest level since September 2018 as rising demand for certain drugs amid the Covid-19 pandemic sent pharma and healthcare stocks soaring. Shah sees further upside.

“The index was in a massive downtrend for four years. Throughout this bear market, the Relative Strength Index never moved into the oversold zone. This tells that whenever reversal happened, the recovery is going to be equally large,” Shah said. “We continue to remain bullish and see huge potential upside. It is currently around 10,000 but could eventually rally up to 13,000.”

Pocket Of Opportunity

Shah expects the Nifty Next 50 Index to outperform the Nifty over the next six to 12 months.

“While the Nifty Next 50 is seen making a massive lower low in April but relative to the Nifty it has not made a lower low. And whenever medium/long-term bottom happens, this is the kind of setup that come into play,” he said. “If there is one index ETF that you should be buying then we strongly recommend Nifty Next 50. We believe it could rise to the levels of 32,000 (from 26,000 currently) and could be the first index to hit lifetime high.”