Fundamentals Turn Expensive For Investors

NSE Nifty closed at a record high with broader market participation as the benchmark index gained by 375.15 points or 1.48 per cent and closed at 25,790.95. It tested the lifetime high of 25,849.25. The Nifty Realty index is the top gainer with 3.05 per cent followed by Consumptions with 2.13 per cent. A majority of sector indices closed with over one per cent gains. Only PSU Bank index closed marginally lower. The India VIX is up by 2.57 per cent to 12.79. The market breadth is extremely positive as 1,852 advances and 923 declines. About 122 stocks hit a new 52-week high, and 114 stocks traded in the upper circuit. ICICI Bank, HDFC Bank, Reliance, and Bharti Airtel were the top trading counters today, in terms of value.

The equity market is at a new record high, with an over 1.5 per cent gain on heavy volume. The Nifty has broken out of the last five days of indecisive, range-bound trading. As expected, the breakout move and target are similar to last Thursday’s impulse move. It formed a similar large bull candle. The volumes were much higher than last Thursday. In fact, the index recorded the highest volume after August 30. Today’s big bull candle erased the negative divergence in daily RSI, as it closed above the prior high. The MACD shows a strong bullish momentum. As stated earlier, the index has met the 25,643 target with a big move. Now, the immediate target and resistance is at 25,885, which is a 78.6 per cent extension of the prior swings. This target is very close, and watch the price behaviour around the target.

The swing 100 per cent extension is at 26,193. Our next year’s first quarter target of 26,256 is also very close. The question is how long this rally will continue. The fundamentals are expensive as the Nifty PE is above the 27 level, which is closer to the historical high. Many PSUs and mid and small-cap stocks declined by over 25 per cent from the high. The Relative Strength is still poor. In this scenario, it is better to apply the risk management principles.

(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)