Nifty Trend, Prediction, View, Target 23rd May 18
Nifty today was seen consolidating around the 10550 spot Nifty levels after falling for the past 5 trading days along expected lines, regular readers of this website are well aware that we were guiding that post 15th may regardless of the election outcome Indian stock markets / Nifty Futures will start falling and that is exactly how markets are behaving, we have been guiding and advising not to hold any long positions and on any bounce back that you may get to exit net long positions and get onto as much cash as possible but what we see based on open interest data is that most of the traders are using a buy on dips strategy which as per our analysis is not the right thing to do rather the exact opposite strategy needs to be followed which is exit and sell on rise towards important resistances as and whenever markets do give bounce backs and even if you personally feel that markets are headed higher the at least hedge your positions and avoid keeping them open. Now from a near-term perspective there has been a lot of public outrage on the way petrol and diesel prices have been moving up over the past 9-10 days after the Karnataka elections so the rise in crude oil prices and the steady depreciation of the Rupee that has been going on for the past few weeks is now being passed on to the consumer in a slow and steady manner by way of hikes in petrol and diesel prices so the strategy being deployed as of now is to increase the rates by 0.30-0.50 paisa everyday but the important point to keep in mind is that as of now the Oil marketing companies are still having a under recovery of almost 2 Rs per Liter for petrol so expect another 2Rs rate hike over the next few days unless Govt reduces Excise duties on petroleum products but that another 2Rs hike is not what could spook Indian Equities, crude oil futures is going to head higher even from current levels and eventually move towards the target of 82$/barrel area and USDINR pair is also heading eventually above for Target of 72 so the next effect of both these combined will be that Inflation will be moving higher much more faster than what most of the street participants have been expecting it to, please keep in mind that the current prices of petrol and diesel are more than sufficient to create massive inflationary pressure as and whenever the under recoveries are made good by the Oil Marketing Companies but the problem will only increase not decrease from here onwards because eventually crude oil futures will move higher even from current prices but this is not the only problem the Govt has to deal with, as a consequence of this rise in inflation the fiscal deficit will also take a hit because as inflation will rise purchasing power from the consumers will diminish and that in turn will mean that lower demand and which will result in lower economic growth and that effectively. There will be other problems besides these too the rise in current account deficit will also be a major problem for Indian equities so from a near-term perspective we can see that there are multiple headwinds which the Indian stock markets / Nifty Futures has not yet totally discounted but at the same time markets have steadily started pricing in the negative effects of rising crude oil prices and weak rupee. Just for the sake of calculations for every 600 Rs increase of Crude Oil price in MCX we expect GDP to decline by around 20 Bps so as of now the growth estimate would be lower than 7-6.8% that Govt has been projecting all along.
Bottom Line Rising energy prices, weakening rupee, slow earnings growth and a situation where the inflation is about to make a powerful comeback are not conducive for Indian equities and there are multiple other headwinds that are about to hit the Indian stock market, in such a scenario we do not expect any major upside to sustain, sure pullbacks will come from time to time but our view remains that the main trend is down and we will see lower side targets before any major recovery in earnings is seen.
Nifty purely from a technical stand point last week made a lower top at around 10930 on 15th May exactly as expected and after making a lower top (previous top was 11171) has been declining at a faster pace than the pullback trend that we have seen from 9952-10930, it is important to keep in mind that we were guiding to exit longs when the pullback was about to end and though many traders were expecting new high and were predicting targets of 11,000 or rather they still are expecting new high our view and prediction is that we do not expect higher side targets, the pullback trend which had started from 9952 lacked volume , was slower than the preceding down move (11171-9952) and also multiple divergences were seen all along the up move besides these factors from a wave perspective it was clearly a pullback move. Based on our analysis, view and prediction Nifty trend has resumed on the downside and we expect lower targets to be achieved pullbacks will keep coming during the down trend however, they must be used to exit trading and investment longs as from a longer term perspective we see much more lower side targets will be achieved. Nifty resistance is at 10666 and support is at 10440 spot Nifty levels, use any pullback or bounce to exit trading and investment longs, strictly avoid any buying on dips strategy for the time being.
Good Trading To You!