Following is the chart of Goldman Sachs Nifty ETF, which is traded on the NSE and BSE. This is the most active Nifty ETF, and serves as a reliable indicator for Nifty Futures Trading.
Since all global markets have been trading mostly on their technical support and resistance lines, this post shares my view on Nifty’s direction in the coming 1-2 months.
Ever since making a top at 6300 in Nov 2010, the Nifty has been trading unders a strong ceiling/resistance line, and given the various negative global cues, and less optimistic Indian economy, it seems unlikely that Nifty will break the resistance line in a hurry in the near future.
However, going by the previous attempts, Nifty should make an attempt for it at some point in the coming weeks. The momentary recent high of 5400 is insufficient as a genuine attempt to break the resistance, and I think there is 80% proability of Nifty going back to 5400 by end-December 2011 or early-Jan 2012. If Nifty falls from that attempt, then Nifty will promptly head towards 4700 levels, and may even break the previous lows.
So while Nifty has lost 6.5% in last 6 trading sessions, I am not selling, and actually looking at short term buying opportunities in select Nifty stocks (within our usual set comprising DLF, Hindalco, Tata Steel, Reliance). All these stocks have been oversold in the last 6 trading sessions.
But the broader market outside Nifty has collapsed in the last 6 sessions. Most mid-caps have fallen 30% in a market where there are no buyers and sellers are push prices lower with each sale. The only mid-cap stock we have bought in this fall is IFCI at Rs 26.5 (today), which is now trading at just P/E 2.8 and P/B 0.4, while having a dividend yield of 3.9%. The company promptly pays Rs 1 as dividend. This good value stock has been trashed badly, and we are long term investors in IFCI. If it falls to Rs 20, we will buy more. Investors with 18-24 months timeframe can buy IFCI at current prices for 100% gain on their purchase price. Traders should not buy any mid-caps below Nifty 5400.
A non-technical factor to keep in mind is that the year-end is approaching in the US, and Dec 31 is also the financial closing for most companies and funds in the US. December usually sees a market rally in the US, where fund managers try to move up the NAVs, and deal with problems afresh in January. This is also the reason why January is known to see immediate falls, because fund managers who want to sell their positions, take action in Janurary, right after the new year break.
Summary: While there is gloom in the Indian stock market currently, and Nifty seems to be on a losing streak, this one way fall maybe a good short-term buying opportunity into select Nifty stocks (mentioned above).
Best Wishes,
Shankar
