Nifty Headed For Range Bound Phase As Push & Pull Factors Converge
On the technical front, the bellwether index appears to be entering a clear range bound phase for the immediate foreseeable future. The band followed a clear upward slope from July ’20, only starting to flatten out around December ’21. But now, the flattening is complete.
The push and pull factors that are at play seem to corroborate the possibility of an extended time correction. The Nifty’s forward P/E is at 18x, which is is at the 10-year average – so no alarm bells there. However, premium valuation has declined from the heady peaks of last year, due to the rise in global & domestic bond yields and the geopolitical risk led increase in crude prices which are bound to have an inflationary impact that may well be more than just transitory in nature.
Going ahead, the Nifty will face a tussle between two forces – economic and earnings growth, and higher interest rates. Higher Interest rates seem to be a near certainty given the fears surrounding inflation. This is likely to restrict equity valuations and cap returns from them for the near term.
At the same time, geopolitical risks loom large. The outcome of the Russia-Ukraine war remains unpredictable even after two months of fighting, and this can lead to pressure on economic growth as well as Nifty EPS growth rates for FY 23.
The current down-wave is likely to see support at around 16,300 levels – post which we may see a recovery back to 18,000 levels. An oscillation in a narrow 1,500 point band seems likely for now.
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