Sensex on track to hit 65,000 in the medium-term, charts show

As per the technical charts, the Sensex has crossed two big crucial levels of 58,500 and 59,800. This scenario is likely to trigger a fresh rally that can see the index cross the last all-time high

Domestic equity markets have staged a dramatic turnaround over the last two months. The frontline indices – the S&P BSE Sensex and Nifty – have rallied over 17 per cent each from their respective lows in June. Thus far in August, they have surged around 6 per cent each.

The Sensex touched the 60,000-mark on Wednesday this week, which was the highest in over four months. Meanwhile, the Nifty index was close to reclaiming the 18,000 level on Friday.

“Markets are just 3 to 4 per cent off their lifetime highs. I think, clearly the sentiment along with liquidity & macro plus micro fundamentals are supportive for a long term rally but yes it will have its share of speed breakers & volatility. With festive season in India on for the next few months, revenge shopping, eating out & revenge travel is on the cards. As a result, a lot of consumption-oriented sectors would find favour. With credit growth and capex coming back, BFSI would also be a beneficiary,” said Devang Mehta, head of equity advisory at Centrum Wealth.

Technical view

Technically, both frontline indices – the BSE Sensex and Nifty 50 – have crossed their respective 61.80 per cent Fibonnaci retracement levels. Typically, surpassing 50 per cent is considered as a bullish reversal.

As per the technical charts, the Sensex has crossed two big crucial levels of 58,500 and 59,800, which are the 61.8 per cent retracement and the trendline breakout level. This scenario is likely to trigger a fresh rally that can see the index cross the last all-time high level and even hit the uncharted territory of 65,000, charts suggest.

On the other hand, the 61.80 per cent retracement falls at 17,300 and the trendline breakout emerged at 17,800 for the Nifty50. It can see a breakout to 19,000 levels in the short-to-medium term, as per the technical chart.

Here are key reasons that led to a U-turn in the markets:

US Fed moves: In its latest meeting, the US central bank raised repo rates by 75 basis points (bps), but its commentary suggested that future rate increases will be dictated by data, and hence, may be halted at some point. This was followed by retail inflation for July, which rose below expectations by 8.5 per cent, signalling easing inflation pressures.

Inflation eases in India: Back home too, inflation has firmly moderated in the last three months with the retail inflation for July coming at a five-month low of 6.7 per cent. At the wholesale level too, inflation in July eased sequentially to 13.93 per cent as food and fuel became cheaper.

Foreign investor flows: Foreign institutional investors (FIIs) have pumped in nearly Rs 46,000 crore in Indian equities over July and August, as per NSDL data. The change in their stance stems from the hope that the global central banks may go soft on rate hikes as inflation cools off.

Commodity prices: The sharp decline in global commodity prices including Brent crude has strongly lifted investor sentiment. On Wednesday, Brent touched a six-month low of $91.5/bbl driven by fears of a demand slowdown, especially in China.

Corporate earnings: Notwithstanding the hit on profit margins in the April-June quarter, market sentiment remained firmly upbeat as several large-caps delivered robust revenue and profit growth led by banking, financial and insurance companies. Moreover, investors brushed aside concerns of margin erosion as commodity prices began their downward journey, boosting the outlook for India Inc in the quarters ahead. Within the Nifty50 universe, profits of the 31 Nifty companies that released their results by the end of July, rose 12 per cent from last year.