The Indian equity market scaled a fresh record high on Friday, with the benchmark Sensex surging above 58,000 and Nifty hitting above 17,300 levels for the first time. Optimism over economic recovery, upbeat global sentiment, fast pace of the vaccination drive and further reopening by the states are fuelling the upward momentum in the market.
The BSE’s 30-share Sensex touched an all-time high of 58,115.69 and the NSE’s benchmark Nifty hit 17,311.95 on Friday. The Nifty index has rallied over 10 percent in the last three months and is up over 23 percent YTD.
The rally is likely to continue and the Nifty is set to hit the 19,600 in the medium-term and 24,400-mark in the long run, says Elara Securities.
“The current rally is preceded by a ‘running correction and/or consolidation’ platform of nearly six months. As a rule of thumb, it could mean a shelf life of at least six months for this uptrend. The ship is just beginning to sail for a new and different kind of voyage hereafter,” Elara Securities said in a note.
The brokerage is of the view that some macro tailwinds from EM equities and currency trends appearing on charts signalling a favourable backdrop for robust targets over the next 4-6 months or 6-8 months.
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“After extreme neglect of large caps by mid-July and exuberance in micro caps, a reversion of trade was underway. A bull market shakeout unfolded in small caps while large caps camouflaged it at the index level,” the brokerage said.
The small caps and broader market shakeout was contained at the ripe bull market threshold, repeating the previous two mean reversions from where returns turned robust, it added.
“In short, when in doubt buy has been proved right again,” the brokerage said.
Meanwhile, the turbulence in China has been accompanied by resilience in other emerging markets. This trend is poised currently at a good launchpad for a durable takeoff.
While India has 11.6 percent weight in the MSCI EM Index, the weight goes up to 17.4 percent for the ex-China version. This can be a catalyst for India flows, the report noted.
Further, the current relaunch of the EM bull market is accompanied by stalled trends in the US dollar.
“The recent push to 93.73 for DXY is mostly the top of the US dollar recovery. The retail shorts panicked at this fakeout, forcing them to cover all their shorts. During the early part of the year, we had highlighted the entire planet was short on the US dollar. The bearish consensus has now fully reversed. This could well be the ripe point where the US dollar downtrend could begin,” he brokerage said.
The new trajectory of outperformance for India’s equities over EM equities is now joined by a new trend of outperformance in the INR. The past two years’ underperformance of the INR with Asian currencies is currently reversed.
The brokerage believes this signals an increased probability of a new uptrend with prospects of a 5-6 percent appreciation first.
(Edited by : Aditi Gautam)
First Published: Sept 3, 2021 2:54 PM IST
