Next pit stop: Nifty at 20K, Sensex 66K in near term
It was a busy November for markets as they navigated through a maze of developments that included US Federal Reserve’s (Fed) stance on rate hikes, inflation data back home, softening crude oil prices and the end of September quarter earnings season, which was mostly in line with expectations. Dollar index fell around 4.3 per cent in November, making this its biggest one-month drop since June 2010.
In November, the S&P BSE Sensex and the Nifty 50 indices gained 4 per cent and remained relative outperformers in the global context. Most analysts expect these indices to gain further ground, albeit minor corrections, as they feel most of the negatives are priced in. The only concern, however, remains the stretched valuations.
While the Nifty50, according to Gaurav Ratnaparkhi, head of technical research, Sharekhan by BNP Paribas, can hit the 20,000 mark in the next few weeks, he expects the S&P BSE Sensex to hit 66,000 levels – up nearly 5 per cent from the current levels.
“The Nifty, after a brief consolidation near 18,600-18,700 in the last couple of sessions, surpassed the barrier of 18,700 towards the end of the session on Wednesday. The hourly and daily upper Bollinger Bands expanded along with the price action, which assisted the bulls. The Nifty is now set to test 19,000 on the upside. In the medium-term, say by December-end or early January, it can hit 20,000 levels. On the downside, 1870018600 has now become a short-term base,” Ratnaparkhi said.
Meanwhile, the market's attention in the next few weeks will shift to the outcome of the Gujarat assembly election and the monetary policy action of the Reserve Bank of India (RBI). Globally, news flow from China, analysts said, may continue to cause volatility, while the movement of the dollar index, US bond yields, and crude oil prices will be other important factors to watch out for.
“The only concern is that the market is overbought, which may lead to some pullback or consolidation at higher levels, but there are no major signs of weakness.
Technically, the Nifty has immediate targets of 18,888 and 19,000. On the downside, 18,700 and 18,500 will act as strong support levels,” said Santosh Meena, head of research at Swastika Investmart.
Recession fears
At the fundamental level, analysts at Barclays Investment Bank suggest that the market seems to be already discounting a mild global recession. The view, they said, is based on the level of economic activity and earnings growth is reflected in equity prices at present.
“If we were to see an average recession, we believe that global equities could decline by a further 10 per cent or so. This would be approximately 33 per cent below the January peak levels on the MSCI All Country World Index,” wrote Jean-damien Marie and Andre Portelli, co-heads of investment, Private Bank at Barclays in a recent note.
Going into 2023, analysts suggest investors should focus on equity sectors and regions that show resilient earnings growth and an ability to defend their margins, otherwise known as pricing power.
“The Sensex has already reached our previous target of 62,000. With all the ingredients in place for an economic fortune, we continue to maintain our overweight stance on India and increase our S&P BSE Sensex target to 70,000,” said Mark Matthews, head of research for Asia at Julius Baer.