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Market Outlook

Last month we saw Emerging market underperformed the world market wherein MSCI EM Index was down by 6% and MSCI WM was up by 2%. However, India outperformed the EM with Nifty remaining flat in last one month. India outperformance is mainly driven by support from domestic money which is flowing directly or through Mutual Fund whereas FIIs continue to pull out money.

We are seeing over 20 lakhs new account opening every month which can bring in substantial new money into the market. Corporate Results in the US continued their strong performance in June quarter as well and over 80% of S&P 500 companies which have reported result up till now have outperformed the analyst expectations.

Whereas in India as well sectors related to international Economy and commodity continued their outperformance even though companies faced lockdown due to Covid wave 2 in this period. The commodity prices continue to remain elevated due to supply chain disruption, stoppage of production due to lockdown and pent up demand.

This has led to inflation moving higher. Until and unless we get large scale vaccination, these supply chain disruptions will continue. Currently we are seeing increasing cases in US, various countries in Asia and Europe which will keep the supply chain disrupted.

The domestic facing consumer driven companies may see some pent up demand in September Quarter, while international facing companies shall continue their positive trajectory.

Although the market has captured strong earnings growth for Nifty of 40% in FY22 followed by 17% in FY23 which doesn’t leave any scope for error. The valuations are also at the upper end of the peak valuation and trading at 18.1x FY23 EPS and there is always a fear of 3rd Wave in India. As such we feel market should remain range bound in near term with Nifty in range of 15400-16000.

Nifty Technical Outlook

Technically, the Nifty is facing a strong resistance at the 16,000 psychological mark. As long as the Nifty trades below this level, a fresh positive momentum in the Nifty does not seem likely. As per swing movement, the Nifty has a strong support of 15,500. Any breakout of this support will extend its fall towards 15,200-15,000 levels.

Momentum indicator RSI is showing a negative crossover, indicating an impending breather. Hence, any breather towards 15,000-14,900 should be used as a buying opportunity. On the flip side, a pullback rally towards 15,800/15,900 might be witnessed.

The overall trend on the Nifty will remain cautious as long as it trades below the 16,000 level. Any move above the 16,000 level on a closing basis will take the Nifty towards the 16,200-16,400- mark.

Investors should not create major long positions as long as the indices form a strong base at their support levels as mentioned. Market participants can definitely trade in the small rally, but with a strict stop loss.

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