Nifty in a Tight Range with Smallcaps/Midcaps Outperforming. Stay Stock Specific

Nifty Technical View

• In a tight range 14100-14150 on downside and 14700-14750.
• Lower Tops and Lower Bottoms but not sharp ones, indicate a correction and consolidation period.
• A move beyond this might need some positive or negative triggers.
• Momentum if it can cross 14750

Nifty Midcap 100

 

• Flatter range with almost 3-5 bottoms around the same zone.
• Relative Outperformance to Nifty
• Stock specific action to continue but could be more selective.

Nifty Smallcap 100

 

• Flatter and Sideways range with 3-5 bottoms around the same zone.
• Relative Outperformance to Nifty not due to a major upside but lesser fall compared to Nifty.
• Time to be Stock Specific.

 

Sunday Thoughts on Nifty

 

• The current market behaviour looks similar to the 2015-2016 period.
• The Index broke out into multi-year highs after 6 years and a strong sentiment on back of Indian Elections. Nifty went from 6300 to 9100. Earnings did not deliver.
• The Rally which started in March-May 2014 lasted for a year, very similar to the current move.
• In 2014-2015 - Nifty at 8700- 9100 was higher than the 2008 highs of 6300. At the same time BSE Smallcap could only go back to 2010 highs.
• Similarly In 2020-2021. Nifty at 14500-15500 is higher than the 2018-2020 highs of 11100-12430. Also a clear higher top and higher bottom formation since March 2020. At the same time BSE Smallcap has only gone back to the highs of 2018.
• BSE Smallcap continued to outperform in 2015 even with a declining Nifty and there were very strong stock specific/sector specific moves. Sectors like Chemicals/Textiles and stock specific cos ( some of the cos we covered ) did really well.
• The Smallcap Divergence became extreme in end of 2015 and we saw a good correction in 2016. That was the next big opportunity.
• We do not expect a similar dip like 2016 but could see an opposite of it after this time correction.
• Post 2015 the earnings did not deliver. Given the low base and post second wave we could expect earnings to deliver between 2021-2023.
• Stock Specific and Sector Specific Moves can continue over the next 1 year.
• We may not see a similar crack like what happened in 2016. 
• For the medium term we watch for 14750-14900 and 13600-13800 as trend change zones.

Conclusions

• No two market cycles are exact but at times can be somewhat similar.
• After a strong one year rally we are now into a consolidation and correction zone.
• A good strategy would be to focus on Stocks and Sectors rather than the Market Trend.
• A few sectors/stocks can go up 50-100% with Nifty being in a 5-10% range.

 

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