March 2021 saw index witnessing sharp swings on both the sides (peak of 15,336 & low of 14,254). Such whipsaw moves contributed to nervousness among the market participants as previous market leaders/outperformers retreated. Broader inter-market analysis indicates that participants are finding options away from equities as volatility inched higher.
Moreover, BankNifty’s underperformance restricted any meaningful/convincing rally in Nifty. Also, different asset classes (i.e. bonds & gold) are now attempting comeback against the equities.
Gains of around 2.5 percent in benchmark index this truncated week has provided some respite to beleaguered bulls, yet Nifty is facing multiple headwinds, which are likely to come into play in coming weeks.
Presence of three-digit Gann number of 151(00) and multiple peaks seen in the month of March 2021 around 15,300 are likely to restrict upside moves. Corrections are an important part of any uptrending index. It should not be aligned in same bracket as a change in structure.
Last month saw Nifty going through a corrective move. Despite choppy activity of last few weeks, we believe medium-term low is firmly in place. Anniversary dates more often result in the formation of tops and bottoms (either minor or significant). A year earlier around March 24, the benchmark index marked a bottom of 7,511 (a low which was never breached thereafter).
This time around, (i.e. March 25, 2021), Nifty made yet another low 14,264. Anniversary dates invariably trigger remarkable high or low swings. Recent recovery has brought an end to phase of decline (which was in play since the peak of 15,432, marked on February 16, 2021).
Meanwhile, ratio of US 10-year bond versus S&P 500 & emerging markets (EMs) is reversing after creating a base at the bottom. It highlights underperformance of both S&P 500 & EMs. Similar scenario is playing out back home, too, as ratio of Nifty GS Composite index versus Nifty has bounced off from the bottom, implying that bonds are outpacing equities as of now. So, we are unlikely to see any runaway moves in Nifty.
Among the sectors, rotation is clearly in play as banks have been on the backfoot and underperforming, while defensives (i.e. FMCG, Pharma) have made a strong comeback. Ratio of FMCG index versus Nifty is bouncing off its multi-year support zone. Positive follow-through is likely to result in outperformance from FMCG space in medium term.
Nifty IT stocks were among the major movers last month, showing resilience. Ratio has bounced off point of polarity zone and moving higher with support of its 200-DMA.
We expect IT stocks to outperform against the benchmark index. Meanwhile, metal stocks are showing bullish patterns, ignoring recent up move in the US Dollar index. Since October 2020, it has seen that corrective moves in ratio have been for shorter duration. Recently, it managed to surpass 200-Weekly EMA, which implies continuation of outperformance of metals against Nifty.
Theme which has made a strong comeback has been Midcaps. Nifty Midcap 100 index has outpaced Nifty in last two sessions. On standalone point & figure (P&F) chart, it has staged a low pole reversal and double top breakout. Recent recovery in this index is aided with reversal in midcap breadth, implying strength within midcaps.
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