2015 Outlook- Market looking good for the long term:: Business Line

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There is a sea-change in investor sentiment this January compared with the last. With the growing conviction that the fortunes of the economy and companies are on the mend, retail interest revived in 2014.

Contributing to this optimism were the Sensex and the Nifty, which moved out of a long-drawn correction phase to hit record highs.

This time last year, the benchmarks had not cleared long-term hurdles.

We had expected a few more months of sideways movement in 2014. But as the year progressed, it became evident that the market had resumed its long-term uptrend.

While the Sensex and Nifty ended 2014 around 30 per cent higher, the BSE Small-cap Index has gained almost 70 per cent and the BSE Mid-cap Index 55 per cent.

The long-term outlook continues to be robust and the Sensex and the Nifty are on the trajectory we had outlined in January 2011.

Wave analysis

In brief, based on Elliott Wave analysis, one wave (phase) of the structural bull run in the Indian stock market — that is in force since 2001— ended at the 2008-peak.

The decline that followed was shortlived but qualifies as a long-term correction based on its magnitude.

The third wave of this bull-market is in force since March 2009. The minimum target for this move is between 37,000 and 42,000 for the Sensex and between 11,000 and 12,000 for the Nifty. The upper targets exceed 50,000 for the Sensex and 17,000 for the Nifty. But these are long-term targets and can take many years to achieve.

The positive long-term view will be negated only if the Sensex records an emphatic close below 21,000 and the Nifty below 6,300.

The break-out above 22,000 in the Sensex and 6,500 in the Nifty in 2014 implies that an impulse wave (move in the direction of the trend) is in motion since the 17,448-trough in the Sensex and 5,118 in the Nifty.

Some volatility ahead

The worrying factor is that this wave is in its terminal stage.

There could be volatility in a narrow band at higher levels as the fourth and fifth sub-divisions of this move unfold.

While the Sensex can move higher up to 32,000 and the Nifty to around 9,200, in the initial part of the year, the movement could get choppy.

The correction of the entire move from the August 2010-low will follow thereafter.

A shallow correction could result in the Sensex fluctuating in the 25,000-32,000 band and the Nifty between 7,600 and 9,200.

Such correction should be considered a base-building effort before the indices launch the next phase of the long-term up-move. We will revisit these counts if the lower ends of these bands are breached.

The upper limit for the Sensex for the year is 37,000, while for the Nifty it is 11,600.