Nifty call and investment rationale for rest of FY

Any prediction of the markets is always a hazardous job but in order to benefit from the markets one must attempt it nevertheless. For the last few months the Nifty has ranged between 8400 and 8900. It has threatened both these levels several times but have not been able to break out in a decisive manner. The Indian situation in terms of the economy has been improving but the overall global economic environment and therefore the market sentiments have really not been positive.

This has resulted in the Nifty finding good support at 8400 and even 8600 recently, mainly due to the high availability of cash being brought in by FII players. At the same time, it has faced resistance at 8900 as at that level the valuations become rather unattractive. As we wait for the Q2 results, we are observing a strange situation. At long last corporate earning growth for several sectors in the Indian economy, most notably Auto/Cement are looking up. With a supportive global environment. one would expect the Nifty to decisively cross the 9000 levels and make new lifetime highs by the end of 2016. Unfortunately the serious headwinds in terms of the US Fed hike, US presidential elections, situation in Europe/Japan, now rising crude prices and the fallout of the BREXIT impact will not enable us to see these Nifty levels.

So what will be a call on the Nifty then? I think the following scenario will play out:-

• There may be fluctuations of the Nifty on both sides of 8500 levels in October, to the extent of 300 points. I think we are more likely to find support at 8500.
• In November and December the US news will dominate and any event there will probably have a negative fallout for our markets. If the Fed rate hike takes place as planned, we will easily see 8000 levels being breached on the Nifty.
• Between January and March 2017, local factors such as the budget and state election forecasts will dominate the news and sentiments. This will result in the Nifty being in the overall range of 8300 to 8700, depending on how things pan out.
• By the end of 2017 a pessimistic Nifty projection will be 9000 and an optimistic one will probably be about 9500. It is very unlikely to be either lower or higher by much more (say another 200 points).

Based on this, how should you plan your investments?

• If you want to rejig your MF portfolio, get out of your unwanted funds when the Nifty hits 8800 or so in the next rise. You can then wait till 8300 or lower to invest in the funds of your choice. I have about 7-8 funds which I plan to deal with in this way.
• Over the next 6 months or so, SIP will actually be a good way to invest. You can put most of your annual money in the next 6-8 months and then stop your SIP for the remaining part of 2017. For my part I plan to invest the remaining 40 % of my MF investments when the Nifty gets close to 8000. It is likely to be in December.
• As far as stocks go, keep your shopping list ready and add to your portfolio by seeing the right prices. Keep a watch on the DMA figures closely between now and the next 3-4 months. There will be serious buying opportunities.
• Pure debt instruments will give lower returns over the next 2 years or so. Even then keep investing in PF/PPF/SSY as per your regular plan. Duration funds may be a risky bet as there is a possibility of the interest cycle turning.
• Arbitrage funds will not make much sense going forward, unless you are purely using these for short term goals. Gilt funds again will give higher returns but are fraught with risks.
• I will focus on MIP, Equity Savings Funds and some hybrid FMP in the debt space. Returns from pure debt FMP will be low, so not much point in being locked into such schemes for 3 years.

Overall between now and 2017 end will be a rather interesting period and I do think thart my call on the Nifty figures will largely hold good.