Nifty 50 index gets severely overbought as the surge continues

  • Invezz
  • Stock Market News
Nifty 50 index gets severely overbought as the surge continues
Credit: © Reuters

The Nifty 50 index spectacular rally continued this week as hopes of rate cuts in India, United States, and other countries rose. The index, which tracks the biggest Indian companies, spiked to another record high of ₹21,345 on Friday. It has risen by 16% in the past 12 months, underperforming its global peers like the Nikkei 225 , S&P 500, and Nasdaq 100 .

Why Indian stocks are rising

Indian stocks have done well in the past few years as several tailwinds have converged. The most important tailwind has been the country’s strong economic performance. In the past few years, India has emerged as the fastest-growing economy in emerging markets.

This performance accelerated after Russia invaded Ukraine in 2022. Unlike western countries, India continued to do business with Russia and benefited with its vast natural resources.

Companies like Reliance Industries (NS: RELI ) bought cheap Russian oil, refined it, and sold it internationally. The company’s annual revenue in 2022 jumped to over $109.6 billion, up from $86 billion a year earlier.

Additionally, India has seen increased Foreign Direct Investments (FDI) in the past few years as companies hedge their China presence. Many companies like Apple (NASDAQ: AAPL ) and Microsoft (NASDAQ: MSFT ) have expanded their Indian presence, which has created strong liquidity.

Most importantly, many Indian retail and institutional investors are actively participating in the stock market. The most recent data showed that retail investors ownership of NSE 100 companies rose from 6.34% from September 2019 to September 2023. Many investors are shifting their funds to stocks, which are doing well, leading to more demand.

However, Indian stocks are facing some headwinds. The most recent data shows that FDI flows in the country has started to moderate. Also, inflation remains stubbornly high, with the most recent data placing it at 6%.

For an investor, it is always important to discount inflation when calculating returns. And in India’s case, it also makes sense to discount the rupee depreciation as the USD/INR has risen by 12.85% from its lowest point in 2022.

The best-performing Nifty 50 index stocks this year were companies like Tata Motors (NS: TAMO ), NTPC (NS: NTPC ), Bajaj Auto (NS: BAJA ), and Coal India (NS: COAL ).

Nifty 50 index technical analysis

NIFTY chart by TradingView

The Nifty 50 index has been in a strong uptrend in the past few months. It recently moved above the key resistance level at ₹20,120, the highest swing on September 15th. The shares have remained above the 50-day and 100-day Exponential Moving Averages (EMA).

At the same time, the Relative Strength Index (RSI) has moved to the overbought point at 81 while the MACD indicator has continued rising. This is a sign that the index has more momentum, meaning it could move to ₹22,000.

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    Inflated and high valuation of IT and financial stocks will bring down Nifty by around 1000 points, as profit booking may dominate soon.
    Like 0
  • apoorv anand @apoorv anand
    The current market levels would be the best candidates to backtest the technical analysis
    Like 1
    • Ajaykumar Garg @Ajaykumar Garg
      See corection after crosing 22000
      Like 2
    • V R Kotha @V R Kotha
      people said same thing at 20000.
      Like 2
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