NSE Nifty 50’s fall in the last two sessions could just be the starting of a correction that could see the benchmark index fall close to the 15000 mark. Analysts at Bank of America think that immediately after the 118% rally in the last 73 weeks, there could be restricted additional runway for domestic equities. “We see risk of estimate cuts and with valuations at a peak, we expect markets to correct 9% near term with our Nifty target at 15000,” they mentioned. Separately, Rahul Sharma, Director & Head – Research, JM Financial, also expects a correction to 15900 as early as in the next 2-3 weeks.
Muted IPO gains may well hurt retail participation
Taper talks in the US, potentially larger US bond yields and US Dollar, consensus EPS cuts, and current muted IPO gains that are negatively impacting retail investor sentiment could act as adverse triggers for domestic stock markets, according to the BofA report. The existing rally has been supported by retail investors, who have contributed to 64% of every day volumes due to the fact March 2020. However, with the current muted listing gains of IPOs the interest pose a threat to levered retail positions, BofA mentioned. None of the listings in August have soared more than 37% so far. CarTrade made its stock market place debut today at a discount to IPO price tag.
“Our analysis of past bull and bear rallies suggests a typical run of about 75 weeks, providing an average 106% return. After such rallies, markets typically correct about 30% over a 4-month period,” they added. The existing rally has helped investors pocket 118% returns in 73 weeks.
Prefer huge caps, defensives
Analysts are advising investors to choose huge cap and defensive stocks. We stay overweight Industrials, provided our expectation of multi-year capex upcycle, and Financials on probably peaking credit expenses and a choose-up in credit development,” BofA analysts mentioned. On the other hand, the rally in metal stocks is anticipated to have run its course now and BofA analysts anticipate any tapering from the US Fed to weigh on commodities, therefore components have been downgraded to underweight. “Nifty’s valuation premium against mid caps and small caps has narrowed to just 9% and 3%, respectively, given sharp outperformance of mid and small caps. We expect this trend to reverse and with a cautious market view, prefer large caps near term,” they added.
Charts recommend close to term correction
In the more quick future, Rahul Sharma, Director & Head – Research, JM Financial, believes a correction to 15,900 could come in the next 2-3 weeks. “Nifty volumes are declining month after month as we go higher indicating lower participation at higher levels indicating a case for correction,” he mentioned in a note. “Caution is advised below 16400 on Longs,” he added.
On the sectoral front, Rahul Sharma sees the FMCG sector producing a comeback. “Historically, FMCG has done well as a defensive when markets have gone in correction/consolidation,” he mentioned though selecting Britannia, Hindustan Unilever, and Nestle as his major picks in the space. “Nifty IT Index has seen a relentless rally of 17 months. Monthly RSI entering into 2000 Bull run territory. Advise investors to keep booking profits at regular intervals and strictly be traders until correction happens,” he added. Metal stocks, Rahul Sharam mentioned are at or under 50DEMA along with Bearish Divergences on Weekly Charts except for Tata Steel.
Correction may well assistance Nifty scale 18000
A correction of 8-10% from the peak will only make the general setup more eye-catching, mentioned Rahul Sharma. Nifty finds help at 15,900 /15,500/15,000 levels. Meanwhile, post this correction, Nifty may well have legs to run up to 17,500/18,000 by November this year, he mentioned.