Nifty CMP: 8432
Modi Government took boldest decision in the history of India to remove Rs.500 & Rs.1000 notes effective from midnight on Tuesday, November 08, 2016 in order to fight against black money. This is the most significant move taken by Govt.
- So let’s first discuss its fundamental effect on market.
Fundamental Analysis Of Indian Stock Market
- As per White paper on black money in India report, it is estimated that around Rupees 100 Billion were deposited by Indians in Swiss bank. However other non Govt. reports suggest that much higher amount of money float inside India which is running a parallel economy. It is like running Dubba market along with Indian stock market. But the amount of black money which is available inside India is much higher than what is deposited outside India.
Negative Effects Of The Government Decision On Indian Stock Market
- Now let’s see Negative effect of how this Govt. decision would affect Indian market and overall economy in general.
- The major portion of black money is going to real estate as an investment haven. It is also one of the reason for higher real estate prices in India. With this step, it is expected that real estate sector will face liquidity crunch so we are negative on this sector. Due to this, we are short term negative effect on Economy as well.
- Jewellery sector is the other sector where black money is been invested and hence we are negative on Jewellery sector as well.
- The main problem comes for small businesses and workers from unorganized sector where most of the transactions are done in cash only. This sector will hit the most with this step.
- Now on banking sector as this is a sudden surprising step, banks can face lots of problem related to cash transaction and it could create liquidity crunch in the system for very short term.
- Also there are lot of black money invested in market which will be getting out of the market ASAP due to this decision.
Positive Effects Of The Government Decision On Indian Stock Market
Let’s see positive effect of this decision.
- Biggest driver of stock market is sentiment. No doubt that this action could be a knee-jerk negative for market but as an investor we are very happy that Govt is taking these bold reforms despite UP election in near future. So Govt is on track of big bang reforms and that will attract long term investor and FII to keep pumping more money into the market. It is a big positive sentiment for Indian Stock Market.
- Second positive outcome is the big chunk of money that will come into Indian banking system. It is expected that around 5-8 Lac Crores could come in Economy which will increase the speed of consumption and growth. This will further increase market outlook.
So from the above points we can conclude that if market sees any correction, it is great buying opportunity for medium to longer term. Also even after US election result, Indian market recovered most of its loss, which shows the strength in market.
However in any case we strongly recommend avoiding any penny stocks or small cap stock with no real fundamentals and also real estate stocks for some time until we get more. Buy blue chip Companies having good fundamentals and hold it as an Investment.
Technical Analysis Of Indian Stock Market
Now let’s look at Nifty technical charts along with US market
- Before analyzing Nifty charts, lets first look at Dow Jones charts
- From the above chart, it is very much clear that after consolidation of around 1 year, Dow Jones kept consolidating and taken support of 17900-18000 zones which is a trend line support of past two highs. Also 17900 is the first Fibonacci retracement level of the rally that is started from 15500 to 18600 levels.
- Most important point is that even after negative election result Dow was up around 150 point till 10.30 PM and 17900-18000 levels will likely hold.
- Now if Dow closes above 18359 on weekly basis then it sets year-end rally and we could see the target of 19500-19000.
- Overall US market is looking very strong and year-end rally likely to be seen in the market.
Now let’s look at the chart of nifty.
- Nifty rally started on February 2016 budget day when nifty saw lows of 6825 and rallied all the way to 8968 level. From that level nifty corrected to around 8400 level.
- From the nifty chart it is quite clear that market is not ready to cross its life time high in hurry. One of the main reason is that market saw huge rally from 6800 to almost 9000 level in a very short time frame. As already mentioned this rally was fuelled by liquidity and now this source of rally is drying up.
- Since Last month FII sold around 7800cr from equity market alone. Also future position suggested that they did cut their long exposure in Index future from 85% to 60%. Due to which Nifty saw almost 600 points correction.
- Now as seen in the chart of nifty on US election outcome, it opened sharply lower and made low at 8002 which is a good support as per Fibonacci retracement level shown in the chart.
- But technical charts on nifty is not looking good. We could see sell-off in nifty on every bounce back. Until Nifty spot closing above 8530 mark on weekly basis we could continue to see the correction phase in market. If market manage to close above 8530 on weekly basis then target for Nifty is around 9000.
- Now let’s see the channel formed by Nifty.
- After making high of around 8968, nifty is moving in a channel. At present channel support stands at 8380 and resistance stands at 8650. On upside, channel breakout confirmation will come if nifty closes above 8650.
- Now on downside, if Nifty breaks and close below 8380 then we could see levels of 8250-8200-8000 where nifty should bottom out.
- Now in order to predict whether nifty will breakout or breakdown let’s see chart of BankNifty which is the largest component of Nifty.
- From the graph it is clear that Banking sector took a channel breakout and on break out trend line it kept taking support which at present stands at 19000 level. Closing below this level will create another 900-1000 point correction in Bank Nifty.
- On US President Election outcome, bank nifty broke 19000 channel support and touched lower range of channel which stands at 18150 and bounce back from that level. Towards end bank nifty again broke the channel at upper side and manage to close above 19000 mark.
- So overall bank nifty maintain channel breakout. Now if bank nifty closes above 19600 level on weekly closing level then we could expect target of 20500-21000 on bank nifty.
- Present decision taken by government to curb black money transaction won’t have much negative effect on market. Rather it is a good buying opportunities for medium to long term.
- On nifty, 8380 and on bank nifty 19000 is very important support level. Closing below these levels will generate lot of selling as per the charts. It is very much likely that Dow Jones will also break 17900-18000 support mark. Both should happen at a time.
- If Nifty closes above 8530 mark on weekly basis then it is clear that correction in market is over. After which we should see good rally in market and pattern target is 9000 mark.