Is the Nifty's Rally Losing Steam? Traders Cautioned Amidst Mixed Market Opinion.
Introduction
The Nifty 50 index has witnessed several peaks in recent years, accompanied by significant gains. However, market observers are now questioning the sustainability of the Nifty's rally. This article examines the performance of the Nifty, evaluates expert opinions, and highlights the factors contributing to the mixed market sentiment.
Nifty's Performance and Recent Peaks
For each of the peaks attained in October 2021, December 2022, and June 2023, the Nifty experienced substantial increases of 36 percent, 23 percent, and 10 percent, respectively, from their previous bottom levels. These figures indicate a diminishing trend in the gains leading up to each subsequent high. Traders and analysts are now cautious, considering the Nifty's struggle to regain its peak.
Expert Opinions
Rajesh Srivastava, a derivative trader based in Bengaluru, remains skeptical about the Nifty's potential for further growth. He does not foresee a new leg of the market rally and believes that the Nifty will likely hover around the 19,000 level. Srivastava suggests adopting a stock-specific approach for traders operating in the current market conditions.
Bank Nifty, another significant index, has recently reached an all-time high but encountered selling pressure at its peak. Due to the heavy weight of bank stocks in the Nifty, the overall index is expected to face additional pressure. This observation further contributes to the prevailing cautious sentiment.
Shortening Rallies and Breakout Expectations
Over the past 20 months, the Nifty50 has completed a full cycle, surging from 18,477 in October 2021 to an all-time high of 18,888 in December 2022 and subsequently experiencing the ongoing rally. However, the duration of successive rallies to all-time-high levels is progressively decreasing. Analysts interpret this trend as an indication of supply around the all-time-high levels and suggest that the last all-time high in December 2022 might have been a failed breakout.
Milan Vaishnav, an independent technical analyst, expresses his preference for a convincing breakout before considering any trades. He emphasizes the importance of observing the subsequent days of low after hitting an all-time high, expecting the Nifty to move higher only after a breakout occurs.
Factors Affecting Breakout and Market Participation
The likelihood of a clear breakout is currently low due to several factors. The overall market breadth is non-encouraging, with precariously low VIX levels that do not align with previous breakouts. This discrepancy suggests a sense of complacency within the market. Additionally, banking and financial stocks have displayed a lack of participation, further influencing the cautious market sentiment.
Broader Market Performance and Profit Booking
While the Nifty attempts to reclaim its peak, the midcap and smallcap indices have outperformed the benchmark since the December 2022 highs. This discrepancy indicates that while the Nifty has struggled, broader markets have surged to uncharted territories. The Nifty Midcap 100 and Nifty Smallcap 100 indices have witnessed gains of 8 percent and 6 percent, respectively, since December 2022.
Considering this situation, Rajesh Srivastava expects a rush for profit booking in broader market stocks. Analysts advise traders to exercise caution when dealing with stocks that have experienced substantial buying in recent months, as some profit-taking can be expected.
Signs of Froth and Long-Term Expectations
Certain mutual fund managers have taken actions that experts perceive as signs of froth in the market segment. For instance, Tata Mutual Fund has announced its decision to halt accepting lump sum amounts and switch-in investments in Tata Small Cap (TSC) Fund from July 1.
Independent technical analyst Manas Jaswal plans to adopt a long position once the Nifty breaches its all-time-high level. He anticipates the index to surge towards the 19,000 level within a week or two.
Conclusion
In conclusion, the Nifty's rally has raised questions among traders and analysts. While gains leading up to each subsequent peak have diminished, the market sentiment remains mixed. Traders are advised to be cautious and adopt a stock-specific approach. A clear breakout is awaited, and the broader market's performance suggests profit booking may occur. These dynamics, combined with signs of froth and limited participation from banking and financial stocks, contribute to the cautious outlook on the Nifty's road ahead.
Disclaimer: The views and investment tips expressed by experts are their own and not those of this website or its management. It is recommended that users consult certified experts before making any investment decisions.
This article is for informational purposes only and should not be considered as financial advice.