Once Nifty hits 15,200, Anant Acharya said that he will buy aggressively.
The market has been largely moving sideways for a few months now, with investors and traders wondering whether there will be a breakout or a breakdown. Is the recent rally indicating a breakout, or will it just be another surge before a deep fall?
Anant Acharya, a market veteran known for his expertise in trend-reversal patterns, speaks to Moneycontrol on the consolidation patterns and how they end. The founder of Applied Elliott Wave, Acharya tells us why he is bearish now but aggressively bullish in the long term.
Also read: The illusionary appeal of the bear-market rallies
Where do you see Nifty headed to?
I see it going down to 15,200 in six months. It may touch 18,600 or even 20,000 and then fall to 15,200 and fall even another 1,000 points because of the momentum. The less likely scenario is that it breaks through at 18,600, if that happens then we enter a five-year bull run and Nifty will head to 27,000. But that is a much less likely scenario. Severe bullishness is the second alternative.
What are the indicators for this trend?
When you look at the broader markets, with Nifty IT or Nifty 500, they don’t seem to be showing the same strength as Nifty 50.
We look at what we call a triangle, or a consolidation pattern. Usually, a consolidation pattern happens between two parallel lines, when the broad understanding is that there is a balance between the bullish and bearish sentiments.
During a consolidation, if the trend lines (drawn to connect the highs and lows) aren’t parallel but move away from each other, then there are different implications. If one of them is horizontal and the other is moving away from left to right (like in the Nifty 50 chart, where the lower trend line is moving away), then the line moving away will indicate the coming trend. If the lower trend is declining (then it indicates a downward trend after the consolidation)… and this is the case in Nifty 50, Nifty 500 and Bank Nifty… all of them are declining today. Therefore, I emphasise that the bears have already won the game but they have taken a pause right now for the Nifty (to bounce back to 18,300 levels). There should be some selling now or 1,000 points from now, doesn’t make a difference (to cause a change in trend) because that has happened earlier.
What will be the trigger for the consolidation trend to end, and the trend to move downwards?
If Nifty goes above 18,600, then everyone will call it a breakout and people will enter aggressively (into the market). That is where the biggest weakness of Nifty or any market will emerge. When everyone gets aggressive, it tends to get skewed on one side.
We need to understand why the market changes direction. It goes up not because some big buyer has entered, it is because people still have the hope that they will be able to sell at a higher price. Once the breakout happens, most of the people who hold the opinion that they will be able to sell at a higher price will have bought and then the last buyer is reached. There will be no one willing to buy at a higher price, and the market puts a top. Similarly, when the last seller is out, when there is no one ready to sell at a lower price, the market finds the bottom.
So you are saying it won’t be an event that causes a change in trend…
Yes, it won’t be an event. People may buy even an expensive stock if they think that they can sell higher. When the hope ends is when the price finds the top. Since this depends on collective thinking, it is impossible to find the exact point when the hope has ended. So, we are looking at a broad indication (with market levels).
Last October (when the market began to fall) we were in a much better state than we are at right now, now when we have geopolitical tensions, slower global growth worries etc., so the market has no business being at these elevated levels. But still, it is at these levels (because the market doesn’t trend in response to events).
For the breakout to sustain after 18,600, the situation needs to improve.
For the breakout to sustain and for Nifty to head towards 20,000 levels, the macro situation needs to improve?
Yes, so the big question is what is going to improve. With central banks extended across the globe and fighting inflation, they have no reason to keep the markets up. Therefore, the level at which the market is, right now does not look ideal for a rally to take off.
Secondly, from 2020, we have rallied all the way to 18,000. That is, we have had a 50 percent rally in the market over the last three years (from the 12,000 levels in January 2020 before the pandemic crash in April 2020). This doesn’t make sense because our economy isn’t growing at that rate, it is growing at 8 percent. If you look at the compounded growth rate of Nifty or Sensex from 1979, you will see that the growth of India is actually reflected in the index.
In between you will have these aberrations from the mean, which we saw in 2000 and 2008 and 2022, then it has to shift back to the mean. In 2000, it corrected by 50 percent, from 1,800 to 800. In 2004, from 2,000 to 1,300, which was a 35 percent drop. In 2008, from 6,300 to 2,200, a 66 percent drop. In 2020, we had a nearly 50 percent drop.
Also, when a bull market matures, the number of stocks that participate in the rally narrows. In 2020, almost all the stocks were rallying and most of them hit their peaks before October 2021; post that, only a narrow band of scrips were hitting their highs, the rest were way below their highs. So the market was going up on a narrow volume of stocks, and that was an indication that the market was about to collapse (and it did). This will be captured in the advance-decline (AD) ratio, and that has been going down this time too. When it falls below 50 percent is when I would be wary, which is what is happening right now with the A/D ratio at 30-40 percent over the last three months. It is sounding an alarm.
If it continues like this for longer, that is, sideways and with this lower AD ratio, then it is a serious cause for concern.
Also read: How to be a bear in a rising market
Can Nifty fall below 15,200?
It has double support at that level, being the top in June 2021 and the bottom in June 2022. So it will be very difficult for it to fall below that.
At 15,200 we should start buying?
Oh yes, that’s where we can start buying aggressively. I would sell my house and buy (laughs). While I am bearish now, in the long term I am aggressively bullish.
After 15,200, the rally will go on for five years?
Yes, five years. Then, it will take a beating. But, the next big bear market will be in 2032, which is too far away. By then, 50,000 Nifty is almost certain. Compound 18,000 at 8-10 percent (approximately GDP growth) a year, and that’s the figure you will get for 2032.
How do you see the sectoral indices moving?
I expect IT to find some resistance around 31,000 and drop down to 25,000, which is another 20 percent drop. The consolidation pattern shows two parallel lines, which indicates that there is a balance between bullish and bearish sentiment. When that pattern is over and there is a breakout, then 99 percent of the time the pattern that came before the consolidation is repeated (Nifty IT was trending downwards before the consolidation pattern).
Nifty Pharma is heading downwards to 11,100-11,200, and if it holds at 11,100-11,200, I will be buying pharma like mad again. That should be the low.
Nifty Midcap will test the last low of 25,000, we may even head to 23,300 or 23,000.
Across the indices, we are looking at around 20 percent correction. That is the worst-case scenario.
