No mountain too high: A steady ascent likely to sustain for Nifty

Trend reversal could be called only if index falls below 17K; trend followers can continue with bullish bets on Private Bank, FMCG indices

The Indian stock market is trading close to its record highs, with the Nifty scaling Mt 18,887 on December 1. A look at the technical variables and some of the statistical data at this point in time may provide insight into the potential trajectory of the index.

Since January 2022, the Nifty has gained a nominal 3.6 per cent and 30 per cent in two years (since January 1, 2021). It has lost around 0.7 per cent in 30 days. The index has been trending up since mid-June 2022. Since then, it has gained nearly 20 per cent. If one uses the 200-day moving average (200-DMA) as a measure of long-term trends, the index is comfortably bullish, poised above 200-DMA.

Background indicators are less bullish.

Trading volumes have been reasonable but not extraordinarily strong in the recent past or this year.

The average number of shares traded per week was 35 per cent higher in Calendar 2021, compared with Calendar 2022. The daily traded value was also about 20 per cent lower than in 2021. The market-wide advance-decline ratio for all NSE stocks has been negative every month since September 2022.

Domestic institutional investors (DIIs), including mutual funds (MFs), have poured over Rs 2.62 trillion into equities since January 2022, with Rs 1.58 trillion between April and December.

Retail buying has also been robust in direct equity, as well as via equity MFs and unit-linked insurance plans of insurance companies.

Foreign portfolio investor (FPI) attitude has been much more variable.

This year, FPIs have been net-sellers of Rs 1.22 trillion. In 2021, they bought a net of Rs 25,750 crore of domestic stocks. Between April and December thus far, they have sold Rs 11,900 crore; in 2021-22, they sold Rs 1.4 trillion. However, in the past two months, FPIs have bought stocks worth over Rs 46,000 crore.

The attitudes of the three major trading groups - DIIs, FPIs, and retail - have aligned.

The positive sector movements and contributions were concentrated in November, but more widespread last year.

The Nifty is marginally down in the past 30 days and up 6 per cent in 12 months.

Last month, the big positive sector moves came from the PSU Bank Index (up 15.5 per cent), FMCG (up 3.2 per cent), Private Bank (up 2.2 per cent), and Metal (up 1 per cent).

Over the past 12 months, the big gainers have included PSU Bank (up 60.4 per cent), FMCG (up 21.1 per cent), Metal (up 18.8), Private Bank (up 17.5 per cent), Auto (up 15.9 per cent), and Energy (up 13.4 per cent).

The stragglers have been the Pharma Index (down 3 per cent in the past month/down 6.5 per cent last year), Realty (down 3 per cent/down 12 per cent), and IT (down 4 per cent/down 19.7 per cent).

Auto went bearish in November when it shed 3 per cent. Media, which had lost 14 per cent last year, saw a 2 per cent recovery the previous month.

One of the principles of following a trend is that one assumes an uptrend/downtrend will stay on in anticipation of a significant reaction. The Nifty would have to react by about 6.5 per cent, from the current levels, to test its own 200-DMA. It would have to react by about 7.5 per cent to about 16,900 – below the 17,000 mark before there is a confirmed breach in an uptrend.

The PSU Bank and FMCG indices have been the most consistent performers. Hence, a trend follower would back those sectors to continue gaining.

A contrarian would look for a rebound in IT and Pharma indices, which are both quite beaten down, or in Auto, which could surge again after the reaction of the preceding month.