Is 15500 level on cards for Nifty-50?

The steep rise of Nifty has been among the very few things in last year which made everyone happy. As the bulls gained and sustained momentum for the larger part of the year 2021, we have been hearing nifty @ 20000 coming soon. However, as they say, all good things come to an end or at least a halt, that is precisely what we at Adwizon feel about Nifty.

Before the party for bulls starts again, there are some important support levels that need to be addressed. Also, the global economic cues as discussed in detail below, support our hypothesis of around 10% correction

Entering 2022, with an already growing scare of omicron virus, continuous selling by the FIIs (net cash selling of ~1 lakh cr since Oct’ 2021) and with the financial budget around the corner; NIFTY-50’s behavior is likely to remain subdued.

At the current market price of 17630; Nifty-50 is trading at a valuation of 24x FY22E, 20x FY23E and 18x FY24E earnings. Valuations look rich at the moment and a correction can be expected in the near-term. Although, the expected correction will provide an investment opportunity in quality large-cap and midcap stocks on the back of strong earnings growth in many stocks and sectors. Analysts at “ADWIZON” can be consulted in real-time regarding any stock or sector you would want to Buy or Sell.

Key Risks to consider, that are looming over Indian Capital Markets:-

• Potential risk of Omicron Covid variant can impact the growth of economy and corporate earnings: India has already started witnessing night curfews in cities like Gurugram, Bangalore & Mumbai and a sudden surge in covid cases from a daily average of 10k to 28k, is expected to affect the businesses at least in the short term

• Inflation risk: This could test the central bank’s resolve to keep borrowing costs lower for longer to support the economy. Bloomberg Economics says “Given the prospect of inflation heating up again and recovery gathering momentum, we see a risk that the RBI raises rates a bit sooner than our current expectations for a reverse repo rate hike in April 2022 followed by a policy repo rate increase in February 2023”

• Rising expectations for three rate hikes in the US in 2022: FED on 15th Dec’ 2021, announced that it would end its pandemic-era bond purchases in Mar’ 2022 and pave the way for three quarter-percentage-point interest rate hikes by the end of 2022. This would definitely stop the easy flow of money into the stock market globally

• Elevated commodity prices continue to put cost pressure and increase in crude oil prices: Since hitting a low of $16 per barrel on Apr’ 2020, the price of Brent crude oil has been rising steadily, it has risen nearly 58% from about ~$50 per barrel to about ~$80 in CY21. Increase in crude oil cost is detrimental to both inflation and fiscal deficit. Economists say an increase of $10/barrel in crude oil prices could raise inflation by 10 basis points and Crude import accounts for nearly 20% of India’s import bill, which tends to increase India’s expenditure and adversely affects the country’s fiscal deficit.

NIFTY-50 TO CORRECT 10% FROM PRESENT LEVELS ?

NIFTY-50 has been on a down-to sideways trend since 19th Oct’ 2021 when it made its all time high of 18604, having key resistances at 18200 and 17750. As it is clear from figure 02, that NIFTY-50 has been making lower highs and lower lows, a clear indication of a downtrend. Daily RSI has been trading between 60-30 levels, again implying bearish nature of the index.

It is expected that NIFTY-50 will take initial support at 16350, which is the 200SMA level that has been a crucial support for NIFTY-50 in the past. Other expected support levels past 16350, are 15800 (gap up opening since 3rd Aug’ 2021) and 15500 (crucial support zone since 18th Jun’ 2021)

To support the basic premise of weakness in NIFTY-50 in the near short term, charts for S&P500 (figure:03) and Russels2000 (figure: 04) are shown which are too depicting weaknesses in the near short term.

Entering 2022 with so many headwinds ahead, it is advised to trade cautiously with less leverage positions and close stop losses.