Where is the Nifty headed?

The markets have continued to get plummeted in 2016 through January and, so far, February does not seem to be an exception. With the FII money being pulled out and the DII brigade joining in the sell off, it is quite reasonable to assume that the situation in the short term, is likely to get a lot worse than better. In this post, I will try to forecast a possible range for the Nifty in the different periods of 2016. The normal caveat of the market being capable of defying the most logical expectations apply here.

I will not get into details of the current reasons for the woeful state of the markets, as these are available in the public domain and I have also written about it earlier in the blog. The global headwinds are against any near term market cheer and our own corporate earning continues to be poor. As a result of this, several stocks are getting re-rated and this along with the general sell off is driving the Nifty to newer lows everyday.

The key question is what are the possible support levels of the Nifty? For a long time many experts thought that around the 7500 levels Nifty will have strong support. Though I have no claims to be an expert this seemed to be intuitively a logical level for Nifty support. It was more than 15 % on the downside from the high levels of 2015 which is fairly significant fall. Also, the Nifty did go down to such levels a couple of times and then received buying support from all quarters. However, the events of January and the corresponding downward journey of the Nifty has clearly proved us to be wrong. Even after going down to 7250, the pullback expected to above 7500 did not quite happen. On the basis of current evidence, it is quite safe to say that 7000 looks a more likely Nifty level as opposed to 8000 at this stage.

What then is likely to happen and how will it affect the Nifty? Let us first look at some of the key determinants of the Global and local economic situation:-

  • Chinese situation is likely to improve through a slew of policy measures that are being taken by their government.
  • Oil prices will continue to remain sluggish due to the over-supply situation and this will affect economies dependent on oil revenue badly.
  • There is little expectation from our budget and the government is hard pressed to announce some measures that will arrest its’ declining popularity.
  • US Fed will probably not hike rates by much and maybe not at all. However, as the process has been set in motion, money from Emerging markets will continue to flow out.
  • Politically the situation will remain volatile worldwide and more so in India, where the ruling formation is unlikely to do well in elections due in TN and WB.
  • India will still do better in terms of GDP compared to other markets but that effect is likely to be realized only towards the end of the year.

What will be the impact on the Nifty over the year? The following is likely:-

  • 7000 levels are likely to hold unless the budget and annual results disappoint completely. March or April are likely to see the lowest levels.
  • Intermediate pull back rallies will be there between now and April. My take is the Nifty can go up to 7800 or so but is unlikely to conquer 8000 levels.
  • Beyond May, when the elections are done and dusted, a sustained  recovery in the Nifty is possible. There will be choppiness but over the rest of the year a move from 7500 to 8500 levels can be expected.
  • Unless something dramatic happens, Nifty is unlikely to cross 8500 in this year.

Your time to buy? Start now and complete most of your purchases for the year by April or May. 

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