NIFTY Price to Earnings (P/E) approaching near resistance zone. There is a famous saying that, "Buy on Rumors and Sell on News". Usually Prices most of the times run ahead of fundamentals on expectations. The financial markets are built on supply and demand factors on hope and distress. The emotions of human plays a key part in often contraction and expansion of the investment cycle.
On the hope of stable government and 'MODInomics' NIFTY started trending its upward move before the elections in last year 2014. A year before investment cycle bottomed out and combination of change in government and stability and expectations on reforms ignited the rally in Indian capital markets after NDA government won the elections with complete majority as people emotionally voted for change for 'NAMO'.
Thanks to falling crude prices which in turn decreased fiscal deficit and boosted economy in a big way as India was in a sweet spot and GDP bottoming out around 4 -5% and Interest Rate cycle also in way to turn around was trading around 15 times price to earnings.
Now the scenario is different the Indian Indices is trading at 23.5 multiples of price to earnings growth. Many stocks trading at higher valuations margin for error would be minimal for stocks. It might take time for earnings to catch up with prices. Definitely while looking for growth valuations and P/E take a back seat. But earnings for the Q3 doesn't justify the valuations for most of the stocks. Although rate cut cycle has turned around there is a big boost of various rate sensitives / cyclicals it might take time to turn around in the business of rate sensitives.
We are now approaching the key event of action which will be a road map for 'Make in India' & other reforms for sure. This 1st budget can provide us a glimpse of Golden era in Indian economy for next 10 - 15 years to come. Most investors are expecting action packed budget & even execution plan with action in coming days ahead from Government.
Coming to the technical outlook :
This time we have applied Elliot Wave Analysis and other simple channeling techniques along with trendlines on P/E as well as Daily NIFTY chart to analyze the medium term outlook on the Index.
No doubt we are in a long term Bull markets. But the valuations and earnings are not in sync at present. Well the trend takes more time to change than people expect. Euphoria can set in for next couple on months in Indian markets and sector churning can happen in the investment cycle.
Applying Elliot wave and channeling to the NIFTY P/E chart are we in the Wave 5 ? NIFTY P/E chart as pert the charts suggesting resistance zone of 23.80 - 24.20 (CMP = 23.43) and an rise can be use to book profits in expensive stocks or be choosy in your investments. Any 4 - 5% rise in NIFTY could be a good profit booking opportunity and wait for consolidation for few months to be on sidelines and bet on rate sensitives on any correction like Infra, Metals and also Banks can be looking into after an healthy correction (CNX Bank NIFTY around 15000 - 16000 levels) for 3 - 5 years perspective. Any dips in P/E around 20 - 21 could be a good buying opportunity in selective sectors for the next bull run for years. Even during corrections selective rate sensitive sectorial stocks can be accumulated systematically.
Applying Elliot wave and channeling to the NIFTY P/E chart are we in the Wave 5 ? NIFTY P/E chart as pert the charts suggesting resistance zone of 23.80 - 24.20 (CMP = 23.43) and an rise can be use to book profits in expensive stocks or be choosy in your investments. Any 4 - 5% rise in NIFTY could be a good profit booking opportunity and wait for consolidation for few months to be on sidelines and bet on rate sensitives on any correction like Infra, Metals and also Banks can be looking into after an healthy correction (CNX Bank NIFTY around 15000 - 16000 levels) for 3 - 5 years perspective. Any dips in P/E around 20 - 21 could be a good buying opportunity in selective sectors for the next bull run for years. Even during corrections selective rate sensitive sectorial stocks can be accumulated systematically.
Now lets have a brief technical outlook on NIFTY chart with key support and resistance zone.
Daily Chart
NIFTY is in an expanding triangle and still holding its bull trend intact, which is one of the toughest patterns to trade with as resistance and support zones expand on both sides as days pass by.
The Resistance & Support zone for NIFTY
R - 9060-9070 / 9153/ 9254-9300 in excessive euphoria might take time still can test 9500 in couple of months
S - 8803/ 8730 / 8650 below can be healthy correction expected
Sector wise Infrastructure, Power, Finance and Insurance are expected to be benefited from the Union Budget - 2015.
Technically Infrastructure and reality sectors have a good charts and metals too can perform on the verge of some swift short covering and reforms.
Stocks in focus LT, IRB Infra, PTC, PFS, HCC, Reliance Capital, NTPC etc.. to name a few.
Raju V Angadi
Equity Research Analyst
To Learn/know more simplified objective approach applying Advanced concepts of Elliot Wave Theory in conjunction with Dow Theory
& Psychological traits to trade with some common sense & optimize
your investment / trading decisions contact on:
rvangadi@googlemail.com (OR) +91 78291 55900
Note: This report is for educational purpose and the specific levels have not been mentioned.
