By Rajesh Palviya
SAMVAT 2078 will be a year of balance sheet leverage, led by significant improvement in corporate profitability. Cumulative and rolling net profit of NSE 500 universe or the last four quarters has touched an all-time high with loss-making sectors turning positive and significantly contributing to the net profitability. Moreover, ROE or the broader market is improving after a muted performance for several years. Overall, the Indian market has entered into an earning’s up-cycle with an expectation of more than 20% growth in Nifty’s earnings in the next two years. With faster economic recovery on the cards, more cyclical sectors are likely to join the rally with the expectation of higher government spending moving forward. The Small and Mid Caps are picking up steam and balance sheet leveraging is likely to play out in 2022 with an improved outlook on return ratios and profitability.
– The Small and Mid Caps are picking up steam and balance sheet leveraging is likely to play out in 2022 with an improved outlook on return ratios and profitability.
– Housing and Banking will be major themes to watch out for in 2022 on account of their improved outlook and current lower interest rate regime.
– The infra sector is an emerging theme as the government augments its spending in this space moving forward.
– Digital and Cloud will continue to remain major long-term structural themes.
– The demand for Home improvement has bolstered and continues to be robust in 2022
– Travel & Tourism stands to be a more promising theme, which has further gained momentum post a pick-up in the vaccination drive.
Technically, the Nifty 50 index is in a major uptrend. It is making a series of higher high and higher lows month on month basis. We have seen signs of profit booking in the month of October and any such corrections should be used as a buying opportunity. On the monthly charts, RSI has entered the overbought zone indicating that the underlying bullish momentum is quite strong for Nifty. Going forward, important supports are placed at 17000 -16500 levels whereas on the upside 18600 still remains a crucial resistance. Once Nifty manages to cross above 18600 it may scale up towards 19200 -20000.
Bank Nifty, on the other hand, continues to trend higher after breaking the 36800 levels. We believe the rally can continue till 45000-47000 levels until next Diwali.
– If we look at long term trends within the sectors, BSE Auto index has given a monthly breakout at 24000 levels. On the upside we expect the rally to extend till 29000-30000 levels this year.
– Sectors like Power and Realty have given long term quarterly rounding breakouts and are sustaining above the same. Upside potential of another 20% – 25% is visible on the charts.
– Capital goods, Metals and Oil and Gas have broken out important horizontal resistances and are now poised for a new leg higher.
– IT, Healthcare and FMCG are making a series of higher highs and higher lows indicating strength on long term charts. Any short term correction should be used as a buying opportunity within these sectors.
(Rajesh Palviya, VP– Research (Head Technical & Derivatives), Axis Securities. Views expressed are the author’s own.)
