Nifty 50, which represents the country’s top 50 blue-chip companies across various sectors, has been consolidating in the 1000-point range since mid-January. This period of consolidation served as a cooling-off phase, taming the previously overbought readings.
However, amidst this apparent lull, numerous indicators suggest a potential surge on the horizon, painting a picture of optimism for investors. The year 2024, being a general election year, is anticipated to heavily influence sentiments in the equity markets. The benchmark indices have performed well in election years despite spikes in volatility, said domestic brokerage firm ICICI Direct Research.
Also Read: Nifty 50, midcaps, Sensex hit record highs: 5 reasons behind market rally
Rhythm to continue
Historically, during general election years, the Nifty has exhibited a notable pattern. It has a tendency to bottom out in first quarter, followed by a minimum 14% rally towards the general election outcome in each of seven instances over the past three decades.
As the index has already seen a 5% correction in January (usual bull market correction) followed by two months of correction, the brokerage expects the index to maintain the same rhythm and head towards 23,400 level by June 2024, driven by BFSI, auto, capital goods, and metal.
"We reiterate our constructive stance and expect Nifty to head for target of 23,400 by Election outcome," said ICICI Direct.
Further bolstering this optimistic outlook are indicators signaling potential bottom formation. The percentage of stocks above the 50-day EMA (20%) along with the net of the daily advance decline (-460) has approached bearish extreme readings, which usually coincide with the bottom formation, the brokerage noted.
According to the brokerage, as per a four-decade analysis, median returns in an election year have been 17%, thus, it expects the Nifty 50 to touch 24,800 levels by CY24 end. Conversely, the brokerage identifies the support level for the Nifty 50 at 21,700.
Also Read: NSE introduces 4 new indices in capital market and F&O segment from April 8
Attractive risk-reward proposition
The mid-cap index has undergone a correction of 9% from its all-time high. Given that bull market corrections over the past decade have averaged around 12%, this correction presents an attractive risk-reward proposition for investors seeking to add quality stocks to their portfolios.
A bottom-up chart study of Nifty constituents paints a similar picture of optimism, with many stocks approaching key support levels after undergoing healthy retracements. This sets the stage for a potential resurgence, as these stocks are expected to resume their structural uptrend, driving the broader market higher across multiple sectors, it highlighted.
Also Read: Nifty 50 April series outlook: 4 stocks where investors can park their money
Large-cap stocks to outperform
The brokerage highlights that large-cap stocks are poised to outperform the broader market. It indicates that the Nifty/Nifty 500 is rebounding from a crucial reversal zone. Over two decades, the ratio bottomed out at 1 on both occasions, followed by largecaps outperforming in subsequent quarters.
Also Read: Market Outlook: 6 key sectors investors should watch out for in 2024
Furthermore, it added that the global equity market conditions are robust and indicate support for a further rally over the coming quarters, given the direct correlation of domestic markets with their global counterparts.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Published: 04 Apr 2024, 03:39 PM IST
