As we stand at the beginning of 2024, the Nifty50 and the Sensex appear to be on a song. Domestic economic activity has recovered strongly from the Covid-19 pandemic with many of the macro indicators growing at a better clip than pre-pandemic levels. The ‘fastest-growing economy’ tag is helping attract foreign investors.  The large number of new domestic investors who entered the market during the pandemic are willing to place their trust in the India story, rushing to buy at every dip.

But this is typically the mood at or near significant market peaks when the outlook is extremely rosy. The rally gets very broad as it matures, with penny stocks and the cats and dogs suddenly enjoying their time under the sun and the market appearing indomitable.

There is no question that the Indian equity market is in a bullish long-term super-cycle. But the need for caution arises from the fact that the recent leg of this upcycle, which began from the pandemic low in March 2020 is almost four years old. The Nifty50 and the Sensex are also nearing some long-term targets. While the ongoing rally can take the benchmarks higher from these levels, a long-term corrective phase is around the corner.

The correction can either be short-lived and deep like the one in February and March 2020 or long-winded but shallow like the corrections between 2010 and 2013. This correction is necessary for building the base for the next leg of this super-cycle.

The charts of major global indices such as the S&P 500, Germany’s DAX, France’s CAC and Japan’s Nikkei too are either at life-time highs or at multi-year peaks. The S&P 500 also appears close to completing its third wave from the 2008 low. With global markets rallying on hopes of significant monetary easing by the Federal Reserve and other central banks in 2024, any surprise to the contrary can put the rally in jeopardy. Challenges to global growth due to the interest rate hikes and slowdown in China are other risks.

It’s the same in India with the markets not factoring the slowing demand due to higher rates, uncertainties due to Lok Sabha elections and challenges to global growth.

That said, the medium-term outlook for the Nifty50 and Sensex looks very positive. Therefore, it is best to stay invested and ride the rally as far as it goes.

Long-term outlook

We assume the beginning of this super-cycle at the post-global financial crisis low. This is to align with other global indices.  The October 2008 low of 2,252 in the Nifty50 marked the beginning of this cycle. The first wave of this cycle was fuelled by the quantitative easing by G7 central banks and gained impetus in Modi’s first term. It finally ended at the pre-pandemic peak of 12,430 in the Nifty50, formed in January 2020.

The sharp plunge in the market in February and March 2020, as the scale of the pandemic became evident, marked the second wave of this long-term cycle. Though it was for a brief time, it retraced 47 per cent of the previous up-move and therefore qualifies as the second wave.

We are now in the third leg of this up-cycle, which has been marked by extremely shallow corrections, less than 20 per cent. This is typical of third waves, which are generally quite strong with broad participation among investors and stocks.

Nifty has already achieved the first target of the third wave and the next target is 23,977. There is a possibility of the current up-move ending in the zone between 22,000 and 24,000. But a strong break above 24,000 will mean an extension of the third wave, paving the way for move to 26,900 or even 33,179.

Corresponding upper targets for the Sensex are 72,939 and 81,016. Strong move beyond 81,000 will open the way for 93,000.

The concern is that there are many long-term targets converging between 21,000 and 25,000 in the Nifty50 and between 73,000 and 85,000 in the Sensex. While it is a good idea to ride the uptrend for as long as it lasts, be ready for the markets to enter a long-term correction anytime from here.

Long-term supports for the Nifty are 18,450, 16,358, 13,953 and 12,980. Strong close below 18,600 will be needed to signal the end of the long-term uptrend.

Corresponding long-term supports for the Sensex are 56,438, 47,190, 36,549 and 32,242. Close below 60,147 will be needed to reverse the long-term uptrend in the Sensex.

Medium-term outlook

Investors have been having a time of their lives in Indian equity market since April 2020. The first wave of this move in the Nifty50 lasted from 7,511 to 18,604 in October 2021. There was a corrective phase thereafter, which was a running correction given the strong demand from Indian retail investors. We assume that the third leg of this move therefore began from 16,828 in March 2023. This move has the targets of 23,683, 27,921 and 32,158. This means another vertical up-move on the lines of the rally in 2007.

But it would best to be watchful until Nifty50 gets past the long-term resistance band between 22,000 and 22,500.

Sensex is also close to an important medium-term target of 71,806. If this is breached, then 83,600 or 95,393 will be possible. This will be a steep climb akin to going up a cliff-face.

Key supports for the Nifty50 in the next few months are 19,289, 18,172 and 17,721. Close below the 19,289 should reverse the current bullish view for the medium term.

Medium-term targets for the Sensex are 71,806, 83,600 and 95,393. Medium-term supports for the Sensex are 65,000 and 60,300.

Finally, a long-term correction is expected soon but given the bullish medium-term trend, make the best of the ongoing rally by staying invested. With the Lok Sabha elections and the US Presidential elections scheduled this year, we all need to be ready for the unexpected.

Happy investing!

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