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Mega bull cycle on the anvil...

Technical Outlook

Indian equities outperformed in CY21 riding a strong recovery post Covid lockdowns. In this report, we have deciphered the history of mega bull cycles over the past three decades to construct our CY22 and beyond technical outlook.

What we expect

The Indian equities are in the initial phase of a multi year structural bull market post last year’s resolute breakout above 2018 highs of 12400. Going by the history of three decades, we expect the ongoing bull market to extend for the next few years with multifold gains. Our Nifty target for CY22 is 21000 based on classical chart reading and bottom up prognosis of Nifty constituents, wherein strong support exists at the 15500 zone. While the midcap space is expected to extend its outperformance, we expect IT to lead the rally supported by cyclicals like Capital goods, BFSI, Real Estate and Auto. Our thesis is based on the following key observations

* There have been three mega bull cycles in past 35 years, each measuring at least 2x price wise from major breakout and lasting for three to four years time wise. We expect Nifty to head towards 24800 by CY24, based on empirical evidence

* In our 2018 outlook, we had focused on mega bull trend in Indian equities, wherein we have envisaged target of at least 17600 by CY22 that has been achieved

* Ongoing bull cycle resembles the CY03-07 bull market on multiple counts:

* BSE200 index (dollar terms) breaking out of decadal consolidation similar to CY04

* Relative performance ratio of Nifty equal weight index with Nifty50 (free float weight), which measures broad based nature of the rally, is on the cusp of reversal from decadal downtrend, first instance since CY04 

* Multiple sectoral indices like metal, capital goods, realty have managed to resolve out of 10-12 year long consolidation, indicating the structural turnaround and broad based nature of the ongoing bull cycle

* Our in-house breadth indicator, which captures mega bull trends, has generated a rare bullish signal only for the third time in two decades. Each of earlier two the signals (2004 and 2014) were followed by a multi year bull phase

* Relative outperformance of Midcap Universe is in mid-cycle of multi year bull phase. We expect this outperformance to get further amplified

* Indian equities are expected to relatively outperform Emerging Markets as verified by multi year breakout on relative charts

* Going by history, the US and Indian equities have continued their structural bull phases even in times of interest rate hikes in US starting 1993, 2004, 2015

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