After a volatile year in which there were sharp moves both up and down, the Sensex and the Nifty managed to end 2013 with 8.8 per cent and 6.7 per cent gains, respectively. That both the indices ended close to their life-time highs was the icing on the cake.
Despite this steady performance by the benchmarks, the broader stock universe has suffered. The BSE Mid and Small cap indices have closed in the negative for the year. Since a majority of stocks have closed the year with losses, it was a stealthy bear market that was in sway in 2013.
Long-term charts reveal that both the BSE Mid and Small cap indices have been in a bear market since November 2010. The recent uptrend in these indices is unlikely to take them much higher and further volatility is on the cards for these stocks this year.
The Indian market is in a structural bull run since 2001. One phase of this uptrend ended in 2008. But after a sharp decline, this long-term uptrend has resumed from the March 2009 low when the Sensex formed a trough at 8,047 and the Nifty at 2,539. We retain the minimum long-term target for the move that began from the 2009-low at 39,337 for the Sensex and at 12,718 for the Nifty. But these targets can take five to 10 years to achieve. This positive long-term view will reverse only if the Sensex closes below 13,000 and Nifty closes below 4,000. In the last yearly review published on December 30, 2012, we indicated that within this bull market, the Sensex and the Nifty had entered a long-drawn consolidation phase since November 2010.
The long-term trading range given last year was between 15,000 and 22,000 for the Sensex and between 4,500 and 6,500 for the Nifty.
Since both the Sensex and the Nifty have ended 2013 close to the upper end of this range, we are at a critical point from a long-term perspective. Inability to push past the upper ceiling will make the Sensex revert to 17,800 or even 15,500. The corresponding Nifty targets are 5,250 and 4,531.
Conversely, if the Sensex and the Nifty manage a strong breakout past 22,000 and 6,500, the upward targets would then be 24,657 for the Sensex and 6,800 for the Nifty.
That said, the pattern of the upward move witnessed last year and the market psychology suggests that a bullish breakout of this long-term trading range might not be possible just yet. Immediate supports that investors need to watch out for in 2014 are 19,000 for the Sensex and 5,600 for the Nifty.
The range for 2014 for the Sensex remains between 17,000 and 22,000 with outer limits at 15,500 and 24,650.
The range for the Nifty is between 5,250 and 6,500 with the outer range at 4,500 and 6,800. We will revisit the outlook during the year if the outer limits are breached.