Nifty50: Past market trends indicate that Nifty50 is far from bullish

The carnage in global markets intensified during the week and the bearish mood completely took hold of D-Street as well. Nifty50 has corrected more than 15% from its all-time high, and investors are wondering if we are approaching the bottom or will the markets get worse?

Usually, when the bottom of the market is on the horizon, the sentiment is very pessimistic, with the fear at its peak. It is a stage when investors are highly skeptical about the injection of new money into the market. These scenarios are also characterized by periods when markets fall at lower volumes and rise with higher volumes.

For now, however, the consensus remains to buy on dips to ride the next rally indicating that greed is still alive. Moreover, volumes are at their lowest levels, far from drying out. Also, if we look at the data for the past 20 years, apart from the event-based market crashes in 2008 and 2020, other corrections have average drawdown levels close to 25% in Nifty. On the basis of these historical precedents, there is still room for markets to fall.

In addition, the S&P 500 fell more than its all-time high from Nifty. The fact that Indian markets have fallen above the S&P 500 in every major market drop suggests that the bottom is still a long way off.

If the markets are to reverse aggressively, major catalysts will be needed which in the current context could be rapid easing of inflation and a pause in aggressive interest rate hikes. At the moment, there are no clear signs of these tipping points. Therefore, it is unlikely that the markets have bottomed out.

However, even if the markets rebound, there are strong resistance levels that will be difficult to break through, thus, raising the possibility of another comfort rally. Therefore, investors should be very careful and should not interpret the comfortable rally as the end of this correction phase.

event of the week
During the week, the spotlight was on retail inflation in India which came in at 7.79% to an 8-year high, jumping significantly from the previous month’s figure of 6.95%. The Reserve Bank of India has forecast Q1 FY23 inflation at 6.3% which is now obviously subject to adjustment at the upcoming June MPC meeting. Given this inflation trajectory, our repo rate has a lot of catching up to do.

The RBI has already raised repo rates by 40 basis points in a surprise announcement and also indicated that it intends to bring the repo rate back to pre-Covid levels. This indicates that another increase of about 75 basis points is already on the cards. Moreover, other major central banks, including the US Federal Reserve, have indicated cumulative interest rate increases of around 2%-2.5%. So for parity, our repo should be somewhere between 6%-6.5%, and therefore requires an additional rate hike of about 150-200 basis points over the next 12-18 months.

Therefore, for the June meeting, the repo rate is likely to rise by another 25 basis points minimum.

technical outlook

ET . contributors

Nifty50 closed strongly negative for the week and major Indian and global indices are in the oversold territory in the short term. Nifty is currently trading around a strong support area of ​​15700, which is the lower end of the downward sloping channel. Bank Nifty is also trading around ascending trendline support derived from the March 2020 low. Therefore, an immediate rebound in Nifty and Bank Nifty cannot be ruled out.

Very aggressive traders may initiate long positions while maintaining a tight stop loss just below 15700. Immediate resistance is now placed at 16600.

Weekly forecast
With results season approaching its last stop, Dalal Street will focus on global signals to determine its direction. In India, WPI numbers are expected to be released and the pending LIC IPO will be listed on the stock exchanges.

Given the current market scenario, it is likely that LIC will be listed at a discount or near the upper band. Moreover, if there are no positive catalysts next week, indicators are expected to remain under pressure as markets adopt a ‘sell on the up’ mentality. Investors are advised to stay on the sidelines, because in such difficult times it is better to wait for the storm to pass than to go fishing on the bottom.

Nifty50 closed the week at 15782.15, down 3.83%.

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