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Closing Bell: Nifty, Sensex pare losses; financials, metals drag

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CLSA's Laurence Balanco says Nifty to hit 12,000 in the long term

Updated : July 27, 2018 08:03 AM IST

CLSA said the house continue to maintain the Nifty Bank target at 31,500.

Global research house CLSA on Wednesday said that the NSE benchmark Nifty will hit 12,000 in the long term.

In an interview CNBC-TV18, Laurence Balanco, global technical analyst, said the house continue to maintain the Nifty Bank target at 31,500.

Balanco said, if we compare MSCI India index against MSCI Emerging Markets index, the ratio is breaking above 40-week moving average.

Edited excerpts:

You did speak to us about resistance levels on the Nifty, since then every resistance level has been conquered, whether it is 10,750, 10,800 and now we are almost at the third resistance level of 11,185. What is the sense you are getting - is going to be onwards and upwards from here on the index and what would your markers be on the upside now?

We are still looking at 12,000, that is our long-standing target and that is where we think this trend can extend to. Right now, momentum is still constructive and we think we will clear the January highs and hit towards the 12,000 target.

This rally on the Nifty has being driven by just a clutch of 6-7 stocks, some of the financials like HDFC, HDFC Bank have been strong, Reliance Industries Ltd has powered through – while looking at this 12,000 target will leaders remain the same? Will these be the key stocks to watch there?

Yes I think so. You have seen in the US too, where the gains have been driven by some of the largecap tech stocks in particular and the Nifty’s advance has been similar with handful of stocks driving it up. To get to the 12,000 target, it will still be the leaders. We don’t think we will get a light-rotation at this stage, so towards the 12,000 target leadership should remain intact.

Although the Nifty has been moving up, the Bank Nifty has been struggling to get above that 27,000-mark, what would the long-term targets be for the Bank Nifty? Do you see some of the largecap banks participate and emerge as the leaders on the upside? Some of them have done pretty well this year, but largely it has just been restricted to names like Kotak Mahindra Bank etc., what do you see as a texture from here on?

It's very rare to get broadening of participation at this stage of the rally. So, it should remain concentrated move and as far as upside targets for the Nifty Bank, we are still looking above the 30,000 level, 31,500 level has been our target for some time, but I wouldn’t be expecting a broadening of participation at this stage.

The positive view on India – the 12,000 target on the Nifty is that in sync with how you are viewing some of the other equity markets around the world as well? Is there a direct co-relationship between us and how you would expect the S&P 500 or the Dow to behave?

At the regional markets, the Nifty’s is moving in line with what we have seen in the US markets, but what we have been highlighting across global markets is the number of distinct characteristics we have seen, you can basically spilt up markets in three groups. The groups that are still remaining in the uptrend, which I see the Nifty falls into that with US markets, then you have markets that are still stuck in trading ranges like Taiwan and number of European markets, then you have markets that have broken below the February–March lows and their 200 day moving averages and there have been markets that have been weaker and underperformed, some of the south-east Asian markets would fit that characteristics.

So, again it's quite concentrated global move rather than full participation that we saw between 2016 and 2017. So, the message is its selective what is moving forward.

Have you noticed the return of foreign flows into the Indian market, because that is what we have seen in the data that we get – three of four days we have seen FIIs buy into this market. How are you reading into those trends?

Yes, it's one of the key things that we saw roughly three weeks ago where India, looking at MSCI India in dollar terms relative to the emerging market benchmark, actually broke the downtrend that it had been for the past 18 months and that relative outperformance for India to the emerging market benchmark has encouraged emerging market investors at least to add exposure to India.

What are the charts suggesting on dollar and crude as well – is there possibility of retesting the earlier highs of $80/bbl?

Starting with crude, we have seen an upside momentum. So our best case scenario is to see this trading range to develop between $72-80 per barrel, apart from the slowing upside momentum is that we go down to the $65/bbl area. So, we think out of the commodity space, oil looks toppy here. But if we look at the other side of the equation, copper, we have seen some bearish extremes. We are back at the $2.70 support area and we think that can rebound to $3. In gold, you have seen bearish sentiment extremes, oversold conditions. So like the equity market, within the commodity markets, you do see a disperse set up of patterns across that. Oil looks toppy here on, while copper and gold look oversold in bearish extremes that should set up for rebound.

On the dollar, if we look at the dollar index, it's still capped at the 95 resistance, so you have slightly upside momentum. So, we think the dollar strength stalls here and we pullback on the dollar index to 92. What that would mean for rupee is that we basically see a pullback in the rupee, where it is capped at the $68-69 resistance and then we see a pullback to the $66.5-67.

So if you are optimistic on the markets, you did mention that emerging market foreign investors are now increasing their exposure to India? What would make you raise your targets on the index? Would you want to scale it up at any point in time above the 12000 target that you have?

At this stage, we don’t have any evidence that can give us higher target than 12,000. So what we expect is for it to get up to the 12,000-point and then see some hesitation in the markets and some kind of consolidation pattern where we can work on for upside targets. So at this point of time, we do not see any evidence to increase that target from 12,000-point.

If you have looked at individual stock charts for India – do you have a view on Reliance Industries Ltd perhaps?

Looking at the charts, what we have seen is that the market had consolidated in a range since late December 2017 and breakup from that range suggests it can move up to the Rs 1,250 area as an upside target.

How does the MSCI EM technical chart look and how does China compared to India – which look like the more attractive chart from now till the end of the year?

You had India in this clear uptrend and relative outperformance started 3-4 weeks ago. If you look at the broader EM index, we found support around the 50 percent retracement level of the move of the 2016 lows. We have found some support in that. The China market, where we found supports basically back at the mid-2017 highs. So, China right now is consolidating after near 20 percent declines that we have seen of the January highs. So, from trending aspect, the Nifty still looks more appealing for the Indian market.

Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.

Published : July 25, 2018 08:52 PM IST

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