An analysis of the broad market Index as it looks to take out 10850-860
India’s benchmark equity index, the Nifty 50 rallied to more than 3-week highs on 11th June 2018, led by gains in Bharti Airtel and Maruti Suzuki along with a couple of banking and pharma stocks. The gains were momentary as the Index dived more than half a percent from the day’s highs to settle at 10786.65, but not before grazing key chart levels at 10850- 10860. However, what’s significant in the day’s move was the broad Index came within striking distance of breaking out of a symmetrical triangle pattern in an uptrend, yet again. The previous instance when Nifty broke out of a similar chart pattern was in March 2017, with a projected target of about 11,200 and although India’s primary Index failed to hit its mark, it rallied a massive 24.5 percent or more than 2200 points in less than a year, following the breakout.
So, are the markets prepared to witness another rally going forward?
Well! They could...although the magnitude of the rally may not be to the extent of the previous one.
On the economic front, things look to be shaping up well with economic growth expanding at an annual rate of 7.7 percent in Q4 FY- 2017-18, the highest since Q2 2016. However, the backbone of the country; the banking sector, is continuing to plummet. Not only are NPA’s of public sector banks scaling new peaks, private banks too are grappling with bad loans and according to an article in Business Today, citing Indian Express, gross NPA’s of private sector banks are up around 450 percent in the last five years. Nonetheless, investments continue to flow into the Indian equity markets through the mutual fund route. The recent data from AMFI illustrates that more than 10400 crores were pumped into equity linked schemes in May this year, which should broadly sum the positive mood.
Coming back to the charts, Nifty is hovering around key resistances at 10850- 860. If the Index manages to settle above the levels in the next few sessions, it could spike to 11500 very quickly with targets for the chart breakouts placed around the 12100-125 mark.
However, investors should remain cautious and consider initiating long trades only if the Index settles above 10860. On the contrary, if Nifty fails to breakout of the chart pattern in the next couple of weeks, it could head right back to 10575-10600.
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