The Hindu Business Line : Sensex may test 30,000-level in three years: Capstocks

The Indian economy has survived a litmus test in recent times and the Sensex could well test the 21,200-level, last seen in January 2008, during calendar 2010 itself, according to Capstocks and Securities.

Briefing newspersons here on the 20th anniversary of the city-based broking house, Mr V. Rajendran, Managing Director, said these projections were generated from a technical analysis based on the Fibonacci retrenchment theory.

ASSET PRICE

Fibonacci retrenchment theory refers to the likelihood that a financial asset's price will retrace a large portion of an original move and find support and resistance at key levels before it continues to move in the original direction.

Fibonacci was a mathematician who devised formulae and relationships that make up the Fibonacci retrenchment patterns in year 1202.

A downtrend is reversed if the recovery is more than 61.8 per cent of the total fall, which, in the instant case, corresponded to a level of 16,000 in the Sensex and 4,750 in the Nifty, both of which have been decisively broken on the upside.

“This means we are going to see new highs in the immediate future,” Mr Rajendran said.

“In our view, Sensex will not just cross 21,200 during calendar 2010, but could launch itself into unchartered territory of 30,000-plus in the next two or three years,” he added.

He said the core sectors such as auto, steel and cement have been doing well in recent times. Indian auto production has grown 12 per cent during April-October this year whereas many developed countries have witnessed a slump.

SECTORS

Major steel companies have shown double-digit growth in crude steel production. Cement dispatches have been rising steadily indicating that the infrastructure sector is holding on its own.

The Index of Industrial Production (IIP) has been consistently beating analyst estimates by wide and positive margins in recent times.

FII money, the maker or breaker of sentiments, is currently coming mainly through ETF (Exchange Traded Fund) and pension funds, which generally have a long-term perspective on the market.

A lot of money is waiting on the sidelines to get invested, which will provide support to the market in times of sharp corrections. Besides, the LIC has been continuously investing in the market and has projected to invest a huge Rs 50,000 crore ($11 billion) during this financial year.

Added to this is a seemingly stable Government at the Centre, which has kick-started reforms by announcing a roadmap for PSU disinvestment. Migration to GST and consolidation of PSU banks are other forward-looking measures to watch out for, Mr Rajendran said.

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