Advisor Speak

Indian equities are no longer in bull market

Rajesh Bansal, Midas FinServe, Delhi

19th August 2017

In a nutshell

Rajesh Bansal's technical view is that the market has certainly entered a correction mode, which could well go beyond the normal 10% correction to a much deeper one over the next 18 months. The bull trend of 2017 has been interrupted - which means time to review your clients' portfolios on a priority basis. While he remains confident of the longer term prospects for the Indian markets, there may be a case for you to take proactive action for clients who have already built up significant exposure to equities.

In our assessment, the Nifty had already completed one leg of up move and had made an intermediate top at 9913 on 14th July 2017. Strictly in technical terms, in our view, Nifty had completed the up move that started from 28 August 2013 from the low of 5285 (intraday low 5118).Though, in momentum, it rose by another 2.0% to 2.5% to close at 10114 on 1st August 2017 and an intraday high of 10137, the next day.

Last week (week ending on Aug 11, 2017) Nifty corrected to make an intraday low of 9685 and a closing low of 9710.

It is highly likely (almost 100% probability) that Nifty would complete a normal bull market correction of over 10% (potentially 12% -17%) in next 6 months.

In Extreme case, there is a possibility that Nifty may correct 38% to 50% of the up move (5285 to 10114) in next 16 months. This implies thatin such a scenario Nifty may correct till 8280 or even to 7700 levels and this leg of correction may last till December 2018.

In the Worst case scenario, Nifty could correct the entire gains made since 29th February 2016, when Nifty closed at 6987.

To sum up, in strict technical sense-

1. Indian equities are no longer in a bull market.

2. It appears to be almost certain that from the current level, Nifty may correct 10% in value terms over next 6 months. However, in Extreme case, the correction could find a bottom around at 8280 or at 7700. And in the Worst Case, we can see Nifty correcting to 7000 levels. In our opinion - 9530, 9174 and 8250 would be the key levels to watch in next 16 months to assess the completion of correction.

3. Every rise from the current level would be an opportunity to sell. There is a 20% probability that Nifty may frustrate short sellers by rising to 10350-10400 level in next couple of months.

However it may be noted that in the Long Term we remain Bullish on the Indian Equities. We strongly believe that the Equity Market will resume its up-ward journey after themuch neededbreather. As shared above, depending at the levelswhere market find its feet, Nifty will move higher to touch 11400 or 12500 and 14000 in the next leg.

Investment Strategy for the Investors:

Case I : Investors already having huge exposure

It is Advisable to book some profits and additional exposure to Equities is not recommended at the current levels. Also this is the time when investor should review the performance of invested schemes and should redeem from the underperforming schemes. In other words the investors should use this opportunity to review and realign the existing portfolio.

Case II : Investors having balanced exposure (Moderate equity exposure)

It is advisable neither to book profit nor to increase exposure at the current levels. Investorsare advised to enhance their equity exposure gradually on every fall in Large Cap / Balanced Funds as per the risk appetite.

Case III : Investors having Minuscule exposure of Equity in the Portfolio

The anticipated corrections will present opportunities to such investors to participate in the growth of 2nd fastest growing economy and get benefitted from the power of equities. Such Investorsare advised to build the Portfolio gradually by taking fresh exposure in every fall in Large Cap / Mid Cap / Balanced Funds as per the risk appetite.

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