The stock market has rallied spectacularly in November and attracted the highest fund flows for cyclical stocks. In the last six months, it has managed to form a series of higher-top, higher-bottom on the monthly charts, which is also positive for the long-term trend. Defensive stocks have participated well in the run-up. The missing sector was technology.
We firmly believe the market has increased its dependency on the currency trend and that, we feel, is heading for a major level where it might be arrested and bounce back sharply. On the lower side, it has support at 55.50 and at 55.90. If it fails to depreciate beyond these, then one move towards 53.50 is not ruled out. According to time series, if the rupee fails to make a new low beyond 57.3275 by end-February, then the bearish impulse of the currency will end. This will be a big positive for the equity markets and the Indian economy. Below 53.50, time wise correction will start and sooner or later it will re-challenge the 51 levels. The Dollar Index is under formation of head and shoulder (bearish consolidation) on the daily charts, which is bearish for the dollar and bullish for the rupee.
Technically, the Nifty has completed its target on the weekly charts around 5,970 (19,600 on Sensex). However, despite several attempts it failed to break the same. On the down side, it has major support at 5,825 and one more dip below this level could lead to further weakness, to 5,750/5,700 levels.
Bullish reversal is only above 5,940 on a closing basis, that might lift the Nifty towards 6,070/6,100. On the monthly charts, it seems the market has shifted its base from 5,200/17,200 to 5,500/18,200.
According to time theory and analysis, January will be the crucial month for the market. The highest point of the month will act as a trend decider level and on the dismissal of the highest level of January, it will lift the market beyond 6,350 levels in a shorter span of time (in a few months).
The overall appreciation after the breakout should be in the region of 15-20 per cent in the long run.
The Nifty is crucially poised and might consolidate between 5,950 and 5,750.
The dependency on the rupee has increased and clarity on the multi-year bull-run for equity markets will only be known after February. According to the price pattern and time theory, the highest level of January will play a trend decider level for the market (more upswings above this level). Investors could invest at each 200-points decline on the Nifty from its recent tops, like at 5,750, 5,550 and so on.
On declines, technically, we prefer metal stocks such as Hindalco, Sterlite and Tata Steel; media - Zee Entertainment, Hinduja Ventures and NDTV; auto - Tata Motors and Bajaj Auto and financials - SBI, BoB, Dena Bank, ICICI Bank, YES Bank, L&T Finance and IDFC. We should stick to top companies in capital goods/real estate/infra/power/cement/ oil & gas at major supports – like L&T, JP Associates, JSW Energy, Grasim, IL&FS Transport, DLF, Peninsula Land, REC and Reliance Industries. We will keep an eye on pharma stocks over FMCG - here, Sun Pharma and Cipla seem promising bets. Consumer durables (Jubilant FoodWorks, Colgate and TTK Healthcare) are on our radar to buy at supports.