NIFTY crossed the 14000-mark giving a fire-show welcome to the coming year. A rocketing growth was witnessed at both the leading indices. How much of a happy news lies in this banging growth? Are the prices artificially inflated or are we witnessing a structural growth?
Projections by classical technical studies
Classical technical analysts have long used price patterns to predict future market movements. One such chart in consideration is the consolidation breakout based analysis.
Looking at the past three years’ consolidation range breakout, further growth of 4200 points (12200-8000) is expected. This means NIFTY would rise to (14000+4200) 16200-mark. The expectation is of a secular bull run ahead. There is no bubble inflating the prices. What validates the durability of this multi-year breakout is the uptrend at NIFTY constituents. Almost 80% of the underlying index stocks are trading above their long term 200 daily moving average (DMA). This is a very healthy sign.
Current market scenario
The market is at its lifetime high. It is for the first time that the market has breached the 14000-mark. This all time high gain was led by PSU banks, once considered a stressed asset.
What led to this phenomenal NIFTY high?
The stock market is called a volatile field. Economic reports, political news, international events like the COVID-hit, and sometimes even a cricket match can be responsible for the fall and rise of the stock market. There are some factors, however, which should be considered for a calculated investment.
Interest rates affect the market primarily. When interest rates are high, investors prefer safe assets like FDs. When the interest rates are low, the risk appetite increases, and stocks become more attractive. The current market rise is also resting on the historically low-interest rates.
Corporate profits also support higher stock prices. With a spur in economic activity post the lockdown, and with the festive season kicking in, corporate profits are on the rise too.
Macroeconomic indicators like GDP growth raise business sentiment as well as investor confidence. Also, as incomes rise, people have more disposable income to invest.
International capital inflow in the form of FIIs, FPIs with the help of P-notes and similar instruments is another thing fueling the stock market growth. It is, however, a very volatile growth factor. It can fly by as quickly as it is pumped in.
Markets also rise due to positive sentiment and herd-following. The new retail investors just go by the growth graph and start putting in money in the hope of going rich with the tide. No one cares for the company fundamentals and ratios in the rage of sentiments. This kind of market rise is hardly sustainable. If the rise is due to sentiment, it creates a technical pullback before a dramatic steep fall.
Is the current rise a structural bull run? Or is it just a technical pullback?
It is important to note that this time there was a record investment of over 831 million through P-notes as of November 2020. 90% of this hot money was put into equities. If it flies by overnight by any negative sentiment, no one can stop the 2008-like bloodshed at the market. It is called helicopter money for a reason, it can fly in a jiffy!
Also, the current market high is geared by overall positive sentiment over economic recovery post-vaccine roll-out, government stimulus packages worldwide, the Brexit deal, and hope for a better year ahead.
If we analyze underlying consumption parameters like a record GST collection of Rs 1.15 trillion last month, the highest ever since its implementation, confidence in the market increases. There is a fresh stimulus in automobile sales and other consumption parameters. TATA Motors has reported a whopping 84% year-on-year sales growth in December 2020!
Where is NIFTY headed?
In light of the positive sentiments over the economic recovery, the market is further expected to go up at least for this quarter. Abundant liquidity, a relaxed monetary policy push, coupled with fiscal support are likely to spur growth. This translates to stock market growth. So, investors should stay put with their money for a little longer, as the bull run is here to stay. Most analysts expect a 15% further rise at NIFTY.
A little interim correction might be witnessed, especially if the helicopter money of FIIs flies by. This interim correction phase should be used as a buying opportunity. Post-budget, market consolidation, and correction are definitely expected. Till then, we can sit and wait for the new record 15000-mark at NIFTY.