Sriram Velayudhan says that the primary reason is that the global inflation expectations have come down. (Illustration: Suneesh Kalarickal)
Indian stock markets crossed a crucial level two days ago. It trended higher than 17,800, which was a level at which technical analysts were expecting a key pivot. “If we joined the highs of October 2021, January 2022 and April 2022, then it was forming a trendline that pointed to 17,800,” said Sriram Velayudhan, Vice President and Head of Alternative Research vertical, IIFL. That is, crossing that level could give a clearer indication whether the markets were experiencing a bounce since mid June or if they have entered into a new bull market.
In an interview given to Moneycontrol, Sriram explains how to interpret the climb in the market.
Which level do you see Nifty headed to? Do you think it is a bear market rally?
To start with I’m not a believer that this is a bear market rally. My primary view would be that this is a fresh leg up that has started in the Nifty. We can safely assume that 15,200 that we saw in the month of June was the medium-term bottom. While the underlying price action is bullish, the momentum oscillators on a daily time-frame are extremely overbought, so we are a tad cautious about the index in the short term. I’m expecting some profit booking as we approach the expiry week (the coming Thursday will be the last in the month, when monthly futures will expire) and a corrective dip to 17,350-17,400. I am expecting the momentum to pause because the move has been linear with brief to no instances of profit taking in the last three weeks.
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Have we then entered a new bull market? If yes, what could be the next peak?
If one looks at the underlying price action since the start of July month, we will assign a high probability of our entering a new bull market. 19,500 is the level it could rise to in the next six to eight months.
Who are the winners that could emerge from this, if it is?
Financials, auto and consumers are the few sectors from where potential winners could emerge.
Why have the dynamics changed, according to you?
First and foremost, global inflation expectations have come down. Secondly, in case of India, selling by foreign portfolio investors (FPIs) has come down as they have turned net buyers lately. While the journey from 18,600 to 15,200 took nine months, the journey from 15,200 to 18,000 took only two months.
Does FPI buying have such a huge effect on market sentiment?
It does. A major part of this FPI flows we believe are from the ETF (exchange-traded fund) flows. ETFs will turn bullish on India if they find the conditions favourable.
What is making them bullish on India now?
In emerging markets, there are two good investment avenues – China and India. Stocks from the two countries have among the highest weightages in the MSCI Emerging Market index. In China, fears of incremental Covid-led lockdowns which dent demand and excessive regulatory interference have been few areas of concern. In comparison, in India, the global sell-off was what was chiefly affecting the markets and not a factor that was country-specific. Also after the correction Indian markets saw between October 2021 and June 2022, FPIs might have seen some pockets of value emerge. All of these factors would have played into the FPIs’ reassessment of India as an investment destination.
What does the rally say about the market’s outlook on recession?
If you look at the price action, the market is definitely overlooking that. There is an old adage that “markets climb a wall of worry” (when markets overlook negative news and prices keep going up). If concerns about inflation are that significant, then markets would not have rallied so much. I think markets believe that the worst of inflation and rate hikes are over.
Also read: China’s hyped decoupling from EM may prove a blip
What are the cues you will be watching to predict Nifty’s movement?
Jackson Hole Economic Symposium will be a key event, which will be held between August 25 and 27. We will get cues not just about the growth in the US but also about the global growth. Secondly, we will have to watch out for the incremental data that comes out from the US. As a trader in the market, US CPI, US GDP, jobless claims and non-farm payrolls will be important.
What is your view on Rupee?
Although it is precariously poised for now, a move above Rs 80 looks less likely.
