Nifty May Head For 12,200 Post Consolidation
In our childhood days, many of us have played the famous and popular game of ‘Snakes and Ladders’. One hundred squares full of excitement and dejection as ladders take you up, and snakes gobble you down! Somewhat similar has been the picture on Dalal Street lately. Every time the dice was rolled and the bulls took to the ladders to go up quickly, they have been bitten down by a venomous snake and the bulls had to start all over again. Digging deeper, the negative catalyst which kept the upmove of the markets under check were the comments by Fed official that poured cold water over hopes of half point rate cut in July as well as delay in presentation of the Bimal Jalan Committee, which will now present its report on transfer of excess RBI capital to the government post-budget in July. On the other hand, the positive catalyst acting as a ladder which has helped bulls to gain quickly was the widely respected Australian Bureau of Meteorology's downgrading of its El Nino ‘watch’ status to ‘inactive’ and the comments from the US Treasury Secretary suggesting that a SinoAmerican trade dispute resolution was in sight as the US was almost 90 per cent on the way to the deal.
In the current scenario, the markets have failed to get a directional move. Many of the investors are wondering what is going on with the markets? Let us understand this first. Every now and then, the market exhibit a phase where neither the bulls nor the bears make any headway and this phenomenon is called a ‘time-wise correction’. Now, most of the folks have heard the concept of ‘pricewise correction’ in which a security witnesses a drop in the price. For example, a stock trading at Rs 500 slips down to Rs 400 in a month or so, which is 20 per cent correction in the price. On the other hand, the 'timewise' correction occurs when the prices of securities are not heading anywhere for an extended period of time, may be for weeks or for months. In simpler term, the price moves like a pendulum, i.e. moving between the two poles. Why does this happen? It happens when the price of a security witnesses a sharp rally in a short period of time, then the price undergoes a period of sideways (time correction) movement, which provides a breathing time to the fundamentals to catch up with the price. Nifty rallied from the lower level of 11,108 to a high of 12,103 in a short span of time, a rally of about 1,000 points in just over a three weeks’ time-frame. Time correction is the law of nature. It’s like a sprinter winning a 100 metre race would not be too enthusiastic to participate in another race as he requires rest and the time to recover.
In the coming days, on the domestic front, a host of macroeconomic announcements are lined up. On the global front, all eyes will be on the much-awaited meeting between Trump and Xi Jinping in Japan. Honestly speaking, the immediate direction on Dalal Street and the global markets would depend on the outcome of the meeting between these two economic superpowers. The auto sales numbers will also start trickling in from July 1. But with majority of the auto stocks trading below their 200-DMAs, these stocks may take a couple of quarters for revival. However, in the short-term, action is expected in these stocks on the hope that series of measures will be announced in the upcoming budget, which will help to boost the rural economy and consequently push the auto sales in the rural market. Coming to the overall outlook for the market, we believe once the period of sideways consolidation matures, the markets will make a headway to a new all-time high of 12,200 on the Nifty.
