Key Highlights
3 Inter-market and Macro Economic Indicators extend long term consolidation
3 Nifty trends up with positive funds flow. Trailing support - 5650
3 Cyclicals to outperform Defensives
1st January, 2013
Nifty : 5,905
India is placed as a leader on the Global Equity rotation chart
Funds flow has been driving the market up
Multiple technical indicators like - Gann Angles, Point & Figure, etc are coinciding with support at 5650
Crucial point of resistance derived by the Elliot Wave theory is placed at 5970 / 6400
Economic Indicators indicate consolidation in long term trend
Depreciation in rupee despite positive funds flow remains a concern
Cyclicals like - Auto, Realty, Infra are expected to outperform defensives
Sector Outlook
Auto Positive
Infra Positive
Realty Positive
Mid-Cap Positive
Banks Positive
Media Positive
IT Negative
Energy Negative
Nifty Vs .... Correlation
Global Equity Positive
Global Commodity Positive
Nominal GDP Positive
Fiscal Deficit Negative
USDINR Negative
India Vix Negative
Large Cap CMP Target
Maruti 1490 1730
NMDC 165 217
DLF 230 286
Indusind Bank 417 500
Mid - Cap CMP Target
Karur Vysya 560 725
GMDC 216 284
Mcleod Russel 350 410
Canfin Homes 152 230
2013 : Consolidating Macros
Nifty for the CY 2012 saw an appreciation of 28% with positive funds flow from foreign investors reported above $22
billion. Despite the gains on Nifty the range was within the overall band of CY 2011 and on the long term chart Nifty is
consolidating in the band of 4550 - 6350.
Inter-market Analysis
MSCI World Equity Index saw a consolidation and Nifty was an outperformer in the calendar year among other equity
markets. International commodity index also oscillated with which emerging markets are positively correlated. Rupee
reported a new low during the year signalling caution for Indian equities. The correlation of Nifty with Rupee
remains positive.
Volatility across the globe was low during the year which provided a good diversification benefit for Global fund managers
towards outperforming emerging equity market like India. Global volatility shot up during late year end which is a sign of
caution and follow-up rise in volatility index may reduce the diversification benefit from emerging markets and global
equity markets can turn more correlated.
Global Equity Rotation chart indicates that Nifty is still placed as a leader and until the chart breaks down below the crucial
supports, the trend can be assumed to be positive. At this juncture, Indian equities are in a mature stage of outperformance
and reward/risk is diminishing.
Macro Economic Indicators
Trends in economic Indicators such as - Real GDP, Fiscal Deficit, CPI and Currency indicates that the economy is consolidating
and so is the Nifty on the long term chart which is stuck with a ceiling placed at 6350 post 2008. Nifty adjusted for CPI has
been consistently moving lower since 2008, indicating that Nifty has been delivering negative real returns.
Prognosis
Inter-market indicators are not that lucrative from a long term perspective and most of them indicates oscillation for the
market with a negative bias. However till the absolute price chart confirms a breakdown, action cannot be taken. Elliot
wave study conducted on Nifty indicates that the index is in the larger Wave C which is corrective in nature. However, the
wave is in a pullback mode with crucial points at 5970 & 6400 and the count will be negated only on sustenance above the
maximum expected retracement of 6400.
Multiple studies like - Gann Angles, Point & Figure charts and Statistical optimized stop loss indicates that, support for the
index is placed in the band of 5650-5700. Till the stated support level is taken out, the trend can be assumed to remain
positive. In the case of breach below supports, the trend will have confirmation of reversal which could lead to confirmation
of sub-wave III of Wave C, leading to a target price band of 5000-5100.
A switch has been witnessed in the sector rotation chart from Defensives to Cyclical and until we have a confirmation of
trend reversing towards the south, cyclical is expected to rule the roost. Sectors for expected portfolio outperformance
are - Auto, Realty, Infra, Mid-caps, Media and Banks. Metals is at a verge of positive breakout and on confirmation of Nifty
making higher highs, the sector can significantly outperform other ones. Sectors to avoid are - IT and Energy.
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