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Technical Outlook

Indian equities continued their record setting spree outpacing global peers, post the second Covid-19 wave. We reassess the broader technical setup to ascertain further direction for the rest of CY21.

What we expect

Indian equities are in the middle of a multi year secular bull cycle. We expect the Nifty to head towards 18600 by end of CY21 led by BFSI, IT & telecom, auto, capital goods, realty & infra. In the process, bouts of volatility should be used as incremental buying opportunity as we do not expect the Nifty to breach 16300. Our prognosis is backed by following technical parameters:

* The index followed a specific rhythm since April 2020 wherein the magnitude of each major rally has been around 33%, containing inbetween corrective phases of 5-6%. The current rally since April 2021 lows of 14151, so far has gained 23%. We expect the market to maintain its rhythm of the past 15 months with the current up leg expected to mature around 18600 levels. Therefore, temporary spells of volatility of around 5% from here on would offer incremental buying opportunity

* Our bottom up statistical model based on relative strength rankings of the Nifty constituents, supports the target of 18600, thus coinciding with conventional chart work

* Relative performance ratio of Indian equities against S&P500 is on the cusp of breakout from 12-year long falling channel indicating multi year phase of relative outperformance ahead. Comparable breakout in CY04 led to relative outperformance during CY05-09

* Midcap and small cap indices are in the early stage of multi year bull market after reversing 2018-20 down cycle. Each of the major bull markets over two decades have generated average returns of 130% from breakout level. From 2020 breakout point, midcap and small cap indices have gained around 70%. Going by history, both indices are expected to gain another 30% from the current juncture over the next one year with intermediate corrective phases of 8- 10%, which will offer incremental buying opportunity

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