The recent decline in crude oil prices following the US election results, combined with the appreciation of the Indian Rupee and the return of FII’s, has driven a substantial recovery in the Indian equity market for the third consecutive week.
The Nifty index surged by 158 points (0.6 per cent), settling the week at 25,144. The broader market also performed exceptionally well, with the Nifty Midcap and Small Cap indices gaining 1.7 per cent and 2.3 per cent.
Index started the truncated week on a positive note. However, profit booking from overhead resistance of 25500 led temporary breather in the subsequent half of the week. As a result, index formed a doji like candle, indicating breather after recent sharp up move.
The Nifty has demonstrated its strongest recovery since the post-COVID lows (recording the highest 14-day rolling returns of 12 per cent since June 2020). This robust recovery, driven by broad sector participation and improved market breadth, reinforces our positive stance and expects the index to eventually resolve above overhead resistance of 25500 and head towards life time high of 26373 in coming months.
With a recent sharp up move, index has approached overbought conditions. Therefore, in the near term, possibility of prolonged consolidation in 25500-24500 range cannot be ruled out. This would help index to cool off the overbought conditions and pave the way for next leg of up move. Therefore, any decline from hereon should be capitalised to accumulate quality stocks backed by strong earnings.
Our constructive bias is further validated by following observations.
· The Nifty has broken out from an eight-month consolidation range of 25,000-22,200, forming a double-bottom pattern. This breakout has occurred at a faster pace, with the entire consolidation range being recouped in just three weeks. This fast recovery suggests a structural improvement that bodes well for next leg of up move
· Time-wise, since 2008, breakouts following an 18-24 months consolidation period have maintained their upward trend for subsequent 20-22 months. Currently, we are only in the second month of the up move, suggesting that this rally has considerable potential to unfold the rally.
· FII’s have injected approximately Rs 73,000 crore into the Indian equity market during the first 12 trading sessions of November, marking the highest inflow since November 2020. This substantial capital infusion is expected to positively influence the re-rating of the Indian market. During Nov-20’s highest FII infusion phase, Nifty has rallied 12 per cent in 3 months and 30 per cent in 12 months.
· The USD/INR has recorded a breakdown from six months of consolidation (96.85-94.15), signalling a trend reversal, which bodes well for further appreciation in Rupee towards implicated target of 91 mark eventually
· The current rally is led by the financial sector. Bank Nifty, which carries the highest weightage in the Nifty (37 per cent), is just 200 points away from its all-time high, which would fuel the next phase of the Nifty’s upward movement.
· Participation across the Nifty 500 universe has expanded sharply, with the proportion of stocks trading above their 50-day SMA climbing from 10 per cent three weeks ago to ~60 per cent.
Kajaria Ceramics: The stock has defended its long-term 100-week EMA and taken a breather after forming a bullish engulfing candle, indicating a breather after a sharp rebound from a key support threshold. Further, successive corrections have become progressively shallower, resembling an ascending triangle formation, while five months of consolidation suggest maturation of the corrective phase.
We expect the stock to gradually resolve higher towards 1340. We recommend buying in the range of 1180–1205 for a target of 1340, maintaining a stop-loss of 1112.
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money-related decisions.)