“We expect that anxiety around the global volatility would settle down in coming weeks and form a higher base, paving the way to eventually head towards September 2022 high of 18,100 in coming months,” ICICIDirect research analyst Dharmesh Shah said in a report today.
He pointed out that over the past five weeks, the index has retraced merely 38.2% of last two months’ rally (15,185-18,100) while absorbing global volatility, signifying inherent strength and relative outperformance against global peers.
“After a strong rally, a gradual pullback to 200 days EMA is considered a healthy bull market correction, which would help index cool off the overbought conditions,” Shah said, adding that investors should not construe ongoing correction as negative, rather use extended correction as an incremental buying opportunity as key support exists around 16,500.
He cited 4 reasons behind the positive stance.
1) Nifty registered a bullish golden crossover in August (50-DEMA crossing above 200-DEMA), implying a major shift of momentum in favour of bulls from a medium-term perspective. In the last decade, in 5 out of 8 successful events, the Nifty has confirmed a golden cross by bouncing from its 200-day EMA.
2) On 16 of 22 occasions, buying on dips during September-October have resulted in positive returns in Q4 of the calendar year.
3) Indian equities continue to relatively outperform in the face of global volatility. “Nifty 500 ratio against S&P 500 has given a breakout from decade-long consolidation, underscoring relative outperformance ahead,” Shah said.
4) Brent crude prices continue to trend downward, after breaking their two-year support trend line.
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