Despite the past few days of consolidation, the trend remains upwards, says Dhiren Sarin, chief technical strategist at Barclays Capital. In an exclusive interview to CNBC-TV18, Sarin says "the sharp 350 point fall is likely a temporary correction at best and we will resume higher ultimately."
According to Sarin, buying interest and easing crude prices will aid the Nifty to move to 5750-6000, and adds that bank stocks will lead the upmove. Despite recent gains, however, Sarin says he needs more confirmation before he calls this rally a bull market.
Unlike 2011, Indian equity indices are actually outperforming the S&P 500, which is another positive sign according to Sarin. "We believe the S&P500 would be looking for a correction in March as it reaches its near-term top, so be sensitive to a correction," he said.
Below is an unedited transcript of his interview. Also watch the accompanying video.
Q: How is the technical picture looking for the Nifty after the sharp pullback of the last five days?
A: Well, let's take a step back and see what's happening with the Nifty over the last couple of months first because we would like to look at it from a bigger picture before we hone into the nitty-gritty details. The Nifty is actually starting to outperform the S&P 500 over the last couple of months; that is fresh news or fresh development given that it was underperforming for well over a year. So the bigger picture is quite positive for the Nifty.
This reversal we saw over the last couple of days and the sharp 350 point fall is likely a temporary correction at best. There is a 200 day average which comes at around 5,170, some more support below 5,100. That should setup a decent base for the Nifty and we will resume higher ultimately.
Q: So what kind of medium-term targets are you setting now on the Nifty given the point you just made?
A: I think given that this massive downtrend has just turned and we are seeing a lot of buying interest, even decent volume on this move higher in the Nifty, we think 5,750-6,000 is the reasonable target in the coming months.
Q: Are you marrying that in with targets that you see on Bank Nifty as well?
A: The banking stocks in the US are doing quite well and I think those are the leaders that we should be looking at. As long as those continue to do well, I think the world should hold up as well. In terms of the Nifty itself, I think given this positive outlook in the Nifty, banking is a high-beta sector so it should also respond positively.
Q: How are the global investors looking because the S&P 500 has been remarkably strong? Any signs of topping out that you are witnessing or experiencing around this 1,370 area or do you think that has more upside from here?
A: We have had a 10% run higher this year so far and that's been almost in a straight line rise, so we are little bit concerned especially as the S&P tests these peaks of last year around 1,371. There is a long-term level that comes around 1,381 as well, so ideally we would be looking for a correction in March and a near-term top.
But we don't want to jump ahead of ourselves. Right now the market is not showing many topping signs, so we are going to stick with the uptrend but just be sensitive to a correction coming into March.
Q: The price of crude, which has now gone up to USD 124-125, has been worrying everyone in India. What do you see there technically?
A: I think what's more important than the price of crude is going back to the Nifty because the Nifty is being impacted by these higher prices and in turn that starts to affect the rupee; there is a trickle on feedback loop effect.
We think that crude oil is also a self-correcting mechanism. For instance the Nifty is pulled back and the crude oil markets as well are starting to pullback showing some near-term signs of being tired. Ultimately, we think that this is self correcting mechanism. As crude oil prices correct lower the Nifty finds reason to rebound back and then in turn that feedback loop continues.
Q: The other one that emerging market watchers tend to track carefully is the dollar index. Any targets on that?
A: Well we think there is a little more downside on the dollar index, another couple of percent. Just keep in mind the biggest component of the US dollar index is the Euro itself and secondly the Yen. We are starting to see the dollar weaken against the Euro but strengthen again the Yen, so there is a bit of a mixed signal there.
Although we are near-term bearish on the dollar, it's likely to be quite a choppy move lower for the dollar index itself.
Q: Aside from the banks, any other heavyweights that you are betting on in order to get the Nifty to that 5,700 mark?
A: I think we should be looking globally here. As much as the Nifty can rise on its own, we find it hard to see it rise if the global backdrop isn't looking positive. So again, let's switch to the US markets. The biggest component leader that is pushing this top side is the NASDAQ; the technology stocks which we are seeing at post levels not seen in over 10 years. So the technology sector in the US is the primary key over here for this bullish move.
Q: How are you classifying these moves in global markets? Are these bull market kind of conditions that you are witnessing technically speaking or are you still saying this is a bearish kind of market and within that framework this is a powerful pullback rally?
A: That's a very good question, probably something that is under lot of investors' minds. We do think this is a bull market move that's panning out, but we would become more confident as levels are taken out to the topside. Turning into a bull market is more like a process, not an event. It takes some time to unfold and it unfolds in steps.
If the S&P takes out 1,381 and closes strongly higher, that will start to initiate more bullish thinking. There is one concern here that I must point out is that the volumes have been low for the DOW and for the S&P, but then again they have been consistently low for months as this rally has panned out. So for the time being we are prepared to ignore that fact.
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