It took the Nifty50 34 sessions to complete its journey from 10,000 to 11,000, as Indian markets climbed all wall of worries after hitting a swing low of 7,500 on March 24 to head north.
The Nifty reclaimed 10,000 levels on June 3 and went past the 11,000-mark on July 20. The index has risen about 10 percent from June 3 while about 11 stocks have rallied 50-100 percent in the same period. The S&P BSE Sensex rallied from 36,000 recorded on July 3 to 37,000 on July 17.
Stocks that rallied more than 50 percent since June 3 in the BSE 500 index include Dish TV India, Sterling and Wilson, Bharat Dynamics, Hindustan Aeronautics, TV18 Broadcast, Intellect Design, Indiabulls Housing Finance, Jindal Stainless, IRB Infra, Hathway Cable and Datacom and Dishman Carbogen.
The index also reclaimed its crucial resistance level of 200-days simple moving average (SMA), which further strengthened the bullish sentiment. The long-term average is placed at 10,866.
The index continues to move in a higher top and higher bottom formation on the daily chart, indicating a positive bias. The chart pattern suggests that if the Nifty crosses and sustains above 11,000, it will witness buying support.
“As long as the index holds above the 11,000 level, the momentum could take the index towards 11,200-11,400 levels. However, if the index breaks below 10,800 levels, it will witness selling, which will take the index towards 10,700-10,500,” Rajesh Palviya, Head–Technical & Derivatives Research Analyst, Axis Securities Ltd, told Moneycontrol.
The Nifty is trading above 20 and 50-day SMA, which is an important short-term moving average, indicating a positive bias in the short term.
The weekly strength indicator RSI and momentum oscillator Stochastic have both turned positive and are above their respective reference lines, indicating a positive bias.
For the long term, as long as the Nifty holds above 200-DMA, also the long- term moving average, the upside should remain intact.
Experts say if the index stays above it 11,000, it can rally by another 500 points.
“The index is getting strength from different sectors, which is positive. The range in which the Nifty is moving is 10,400-10,850 and a breakout or a breakdown will decide the next 500-point move,” Gautam Shah, the founder of Goldilocks Premium Research, said in ‘The Market Podcast’ with Moneycontrol.
“The good part is that with most of the negatives priced in, the economy is opening up, there are hopes of a vaccine, the global market is looking up and the dollar index has started to correct suggest that chances of a breakout are much higher, and if that happens, we could well move in the 11,000 territory,” Shah said.
Commenting on the sectors, Shah is positive on midcap IT as compared to largecaps IT stocks. IT stocks good run was likely to continue for many weeks and many months.
What led to the rally?
After hitting a bottom in March, the rally in Indian markets was fast and furious and did not give investors a chance to enter. The Nifty completed the 1,000-point journey to 11,000 in a little over 30 sessions.
The rally is driven by both global and domestic factors. Though most global institutions paint a bleak picture for the economy due to the coronavirus outbreak that resulted in lockdowns in most countries but market participants are hopeful of a sharp recovery.
The earning recovery has been pushed back by at least 12 months, warn experts, but with hopes of a potential vaccine, monetary easing announced by central banks as well as low-interest rates, which have made other investment avenues unattractive, pushed money into equity markets.
“On the positive side are factors related to strong rural recovery, low interest rates, and policy response, which will help recovery. Globally, we have seen a massive unleashing by both the government and central banks to inject liquidity in the real economy,” Neelesh Surana, CIO, Mirae Asset Investment Managers India Pvt Ltd, told Moneycontrol.
“In India, RBI has delivered a strong monetary stimulus through three key measures injecting liquidity and lowering the interest rates. As a backdrop, it’s important to note that prior to the COVID crisis, the Indian economy was already in a downtrend and on the way to recovery,” he said.
Surana added that the GDP growth, corporate profit /GDP and ROE were all close to 15-year lows pre-crisis and given that the base was already low, the room to go down was limited post the crisis.
Since March-end, many central banks have resorted to large stimulus and printing of money. The easing of lockdown in June helped Indian markets to join the global rally driven by liquidity, experts say.
“Such large easing and printing of money have led to a surge of liquidity and money was trying to find its way into various asset classes, including emerging markets like India,” Prasanna Pathak, Head of Equity, Taurus Mutual Fund, said.
“The end of lockdown in June, helped the Indian markets to join the global rally driven by liquidity. The Indian economy was already on a downward spiral before the COVID outbreak,” he said.
Can we say that the worst is over? Well, for that the world awaits a vaccine but that is still some time away. The market rally has run ahead of fundamentals but hopes of a better tomorrow and global liquidity are egging the bulls on.“With an extended lockdown and the after-effects, outlook on both the economy and earnings continue to be weak in the medium term. Going forward, one needs to watch as to how the recovery in the economy shapes up, how the geopolitics evolves and also how the COVID-situation/global events unfold. We remain cautious on the markets,” Pathak said.
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