Every trader and Investor has following few questions in their mind:
– Why Indian Stock Market is falling sharply?
– What would be Nifty bottom?
– What would be the Next Movement of Indian Stock Market?
– When would be new highs seen in Indian Stock Market?
– What strategies to be followed in this Market Condition?
EquityPandit answered all of the above queries with detailed Technical Analysis of Nifty.
Due to global jitters, Nifty has seen 7% correction in January 2016 till date. There are so many factors for this downfall, but the main reason is Liquidity. All Experts across the nation argued that China was the reason behind this downfall. But we don’t agree to this reason. China problem was very well known from Year 2014 to mid of Year 2015, when market rose more than 50% then how come its effect came now??
China is just an image that was created to over shadow the main reasons behind this downfall.
What were the Actual Reasons behind this downfall?
There following are the problems that caused this market fall:
- First of all, when US FED hinted that they are going to raise interest rate in December 2015. If you look at FII data in Indian as well in emerging markets from May-2015, they started pulling money from all markets. Because of this, money that came from US has to go back, due to rise in interest rates in US. So, without FIIs money support, market was not able to move further positive and had seen selling pressure on every positive movement.
- Second reason is Crude. As crude price fell to 12 years low, many crude producing countries felt heat in their budget. Saudi reported highest ever budget deficit in its entire history. So they had no option but to start selling oversees assets which they have invested mainly in Equity/Currency and Government securities to meet their budget requirements.
- Around 59,000 crores has been pulled out from Indian markets since May-2015, when Nifty was at 8400-8500. Most of money was been pulled via ETF route.
- Billions of dollars had been pulled out from global Equity markets by Oil producing countries and ETFs, who has no option but to bring money back to US. Now, till January month of this year, DIIs were trying to nullify the effect of FII by investing on every dip. But problem started for DII when retail investors started to panic. Retail & HNI money reduced in MF since last few months and that’s the problem right now. If MF and DII flow slowed down, then who will compensate selling of FII, as it is very much clear that FII would still be sellers in months to come?
- That’s the main reason since last week, we have seen big crack in Midcap and Small cap stocks. It is nothing but panic selling of retail investors and margin calls triggered by HNI/Operators.
So when would this volatility stop and market will make bottom?
No one in market can predict perfect bottom or perfect top but let us look at history to get some clues. EquityPandit had published this article in year 2008 when market was in bear phase and bottom has been formed precisely at those levels only.
EquityPandit was the first company who predicted that year 2016 will see a sharp fall based on this 8 years correction cycle. From above article it is clear that after every eight years, we have seen big correction in markets, Year 1992-2000-2008 and now 2016.
So, what would be the next movement of Indian Stock Market?
- Now let’s take a look at Nifty technicals and let us predict the levels, Nifty should stabilize and make bottoms.
- From the below given chart, it looks like Nifty should stabilize at 7200-7300 levels. As we are comparing this cycle with year 2011-2012, correction period was almost 1.5 years i.e. same as of this downfall. Also price correction also done around 15-20% from high.
So, Nifty could have another correction of say 100-200 points from here and with local as well global supportive factors, bottom should form around these levels.
Now what if Global cues worsens and Nifty breaches these levels?
- If Nifty breaches 7200 levels with global cues, then market will see sharp downfall and that downfall would be supported with big panic in the market.
- Presently on Nifty charts, below 7500 levels, two Head and Shoulder breakdown occurred. Now as per this pattern, Nifty targets are set at 6700-6200 levels. First pattern target is 6700-6800 below which Nifty will go to 6200 levels, where it will find its bottom.
- Also it should be noted that at present, Nifty PE ratio is around 20. At 6800, Nifty PE ratio will be 18 and at 6200 it will be around 15-16. Normally big correction ends when Nifty PE ratio is between 14-16. So we are firmly sure that 6200 will be rocks solid bottom for Nifty, if anyhow, it comes to those level.
So, When would New Highs be seen in Indian Stock Market?
Next bull run in Nifty will start only if Nifty will close above 8200 on monthly charts. If Nifty will close above 8200 on monthly basis then next target for the bull run will be 11230 for Nifty.
Based on Technical Analysis, following strategies should be followed:
- For long term investors: Invest 30% amount in market at this level and remaining amount at 6800 and 6200. As Indian growth story is intact there is nothing wrong for long term investor to allocate money at this level in good stocks.
- For short/medium term traders: Buy now if Nifty closes above 7500 with stoploss of 7300. If Nifty breaches 7200 then chances are that it can test 6900-6800. So, around 6900-6800, one can buy with stoploss of 6700 on closing basis. And if in case Nifty see 6200-6300 levels then buy blindly without any stoploss and hold it.
- Nifty Support levels: 7200-6800-6200. Resistance levels:7500-7800-8000.
- If Nifty closes above 8200 monthly basis then bull run will start which will bring Nifty to around 11,200. Till then, Nifty will be in bear grip.
- Long term Investors should divide their Investment amount in three equal parts for every support zone and hold it for few years.