Mega bull cycle on the anvil

What’s Buzzing:

After 12% correction in the Nifty amid Fed rate hike and widely spreading Omicron variant, the investors are confused about whether to stay cautious at current levels or be opportunistic!

Context:

Based on our historical study of the past three decades, we believe Indian equities are in the initial phase of a multi-year structural bull market. We expect the ongoing bull market to continue for the next few years with multifold gains. Within such bull market cycle, intermediate average correction to the tune of 14% has offered a buying opportunity.

Our perspective:

Our Nifty target for CY22 is 21000 based on classical chart reading and bottom up prognosis of Nifty constituents, wherein strong support exists at the 15500 zone. Sectorally, we expect IT supported by cyclicals like capital goods, BFSI, real estate and auto to lead the rally.

We believe the ongoing bull cycle resembles the CY03-07 bull market on multiple counts as the BSE 200 index (in dollar terms) has given a strong breakout from decade long consolidation. This development is significant for foreign investors as they are poised to benefit. Meanwhile, relative ratio of Nifty Equal weight index with Nifty50 (free float based) is breaking out of multi-year down trend, highlighting broad based nature of current bull market, similar to 2003-07.

Our in-house breadth indicator, which captures mega bull trends, has generated a rare bullish signal only for the third time in two decades. Each of earlier two the signals (2004 and 2014) were followed by a multi-year bull phase.

There has been a lot of noise about potential rate hike in the US. The perceived notion is that rising interest rate is negative for equity. However, contrary to perceived wisdom, the empirical evidence displays a divergence in facts. In the last three cycles, the S&P 500 index has rallied despite interest rate hike by the Federal Reserve during 1993, 2004, 2015.

At the current juncture, as 12% correction is behind us (from lifetime high of 18600) investors should focus on accumulating quality stocks like HCL Technologies, United Spirits, ABB India, Aditya Birla Fashion & Retail, Indian Hotels, SKF India, Jindal Stainless, Transport Corporation of India, Gabriel India in staggered manner from medium to long term perspective.