Special Report [Part Three]: Where Is The Indian Stock Market Headed?

Coming back to the most important questions of the current times:

–Where is the bottom of the market?
-Will the market correct more?
-Should we exit our investments?
–Is this the time for fresh Investment or should we wait?

For all the readers, who are new to this series of Special Report, can read the previous two reports at:

Special Report [Part-1]: Where Is The Indian Stock Market Headed?
Special Report [Part-2]: Where Is The Indian Stock Market Headed?

In our last report, we mentioned that if Nifty breaches 8500 then we would see sharp downfall in the market and same happened. On March 18, 2020, Nifty broke level of 8500 and on March 24, 2020, it made a low of 7515 level. This is almost a 12% correction from the level we have mentioned. Presently Nifty is trading at the level of 8084.

Now before going deeper into the analysis of the markets, let’s take a look at some data and facts.

1. Corona spread in India is still under control but the recent event in Delhi and some other part of the country has raised some questions on the success of the lockdown. The present case of Corona is around 3500 and the next two weeks are very critical for us. If we anyhow managed to flatten our corona spread curve then it would be a big achievement for us.

2. US President has also mentioned the same thing. He told that the next two weeks are very crucial for the USA and the COVID-19 outbreak could kill around 1-2 lakh Americans this year even with social distancing, business closures and other mitigation efforts. This projection is quite shocking and to avoid this, US President Trump has extended the lockdown till the end of this month.

3. In our last article, we mentioned that situation in China is now under control. Data suggest that major Industries in China are now running and life in China is now normalizing.

4. The situation in Europe is still worrisome and most part of Europe is still under lockdown.

5. In India, so many promoters are buying back their stocks. Hero, JSW, TATA and BAJAJ groups are amongst a few of them. This means that promoters are giving confidence to the market that present prices of stocks are having good underlying and long term value. There is a very significant buying by the promoters.

Now when we summarise all the above facts and data, we can say that the situation is likely to improve after two weeks. The world market at present is pricing-in the Corona damage and after that market would be pricing-in the effect of recession which the whole world is surely going to see due to financial crisis. The situation in China is normalizing very fast which means that the Corona effect across the globe should also come under control by the end of this month.

Central banks and government across the world has substantially provided the stimulus and are committed to delivering more, as and when required. This means that the market and Economy would recover fast once the Corona effect gets normalized.


Now let’s look at the Nifty chart.

-As shown in the chart, Nifty retracement levels are 10028, 8542, 6140. We believe that Nifty should consolidate between 7500-9000 levels. The market would watch and analyze the Corona case pattern both in India and globally and based on that, Nifty would break the range on either side. Now if Nifty breaks levels of 7500 then we believe that it would correct further and we could see the level of next Fibonacci retracement level of 6140. However, such a situation would occur only if the corona situation would worsen further. Till then Nifty would remain range-bound between 7500-9000. If Nifty breaks a higher end of 9000 then we would see levels of 9400 and then 10028.


- Important point is that even if Corona spread comes under control, the market would still have to face recession and hence upside for the market is been capped. Once the Coronavirus spread and effect eases down then investors would watch the Central banks about how fast and effective measures they can deliver to bring the economy back to the normal. This process would take a few months for sure.

- Also, every bear market typically ends with around 50-60% correction and Sensex P/E ratio during that period is always around 11-14 whereas at present it is around 17. So, we would surely see either price or time correction in the market. To check this theory, kindly refer to our article written in the year 2008 when we predicted the market bottom and actual bottoms were exactly near those levels.

- So as we mentioned above that every financial crisis ends with a 50-60% correction in Nifty and with Sensex P/E ratio of around 11-14. At 6140, which is our Fibonacci Retracement level, Nifty would complete its 50-60% correction and also Sensex PE ratio would reach its bottom level of 11-14. This means that the Nifty retracement level of 6140 also satisfies both of the above conditions. But this level is possible only if Nifty breaks the level of 7500 but until then we are expecting a range of 7500-9000 for Nifty. And if Nifty doesn’t break the level of 7500 then we would see a prolonged consolidation in the market to bring Sensex P/E ratio at the level of 11-14.

BankNifty Outlook:


- BankNifty retracement levels are 25698, 24421 and 14506. Similar to Nifty, BankNifty’s 50- 60% correction would be seen at around 14000-16000 levels. BankNifty made low at 16000 levels and bounced back from those levels. So, BankNifty should now trade in the range of 16000-21421 and breakout on either side would give another 10% movement in that direction.

US Dow Jones Industrial Average (DJIA) Outlook:



-Dow Jones' retracement levels are 18471 and 15500. Dow already made a low at 18215 and rebounded from those levels. So like Nifty, if Dow Jones breaks those low of 18200 then we would see another 10-15% correction in it.

So almost all global markets are at very critical points and if low made in the month of March 2020 breaks then we would see further 10-15% correction in all markets and that would be the FINAL downfall and ultimate bottom for all the markets. But remember, this correction would be seen only if March low is breached.

Conclusion:

1. For Long Term Investors, who have the cash to deploy, should now deploy their cash in three trenches. As we said that if March low breaks then Nifty would have room for another 15% correction, where we firmly believe that those levels would be FINAL ULTIMATE BOTTOM. These opportunities are very rare and hence it is an excellent time to start buying good quality stocks in three different trenches at every 5-7% downfall.

2. For Short Term Investors, who already stuck in the market should wait for now as the market is in a consolidation mode and if March 2020 low is broken then they should exit their position and accumulate stocks again at lower levels.

3. For Traders, this is a highly volatile market so trade with proper Stoploss.

4. However, whether you are a Long term or a Short term investor, everyone should understand that Corona has left some permanent damage to the economy and most of the sectors. So we firmly believe that one must evaluate their portfolio or trading strategies with their advisors. Remember, in the year 2008 when DLF (NS:DLF), JP Associate, Unitech (NS:UNTE), Suzlon and HDIL were few of the favorite stocks among Investors. And now we all know what happened to these companies. There is a saying that “After every bear market, a new bull market starts”. The present bull market which has ended in February has lasted for 10 years and now the bear market has started again. The leaders of the next bull markets would be the new sectors and the new set of stocks, as always. So it is quite possible that even if the market goes up, your portfolio won't. So, the evaluation of your portfolio is the only key in the present market.

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