Technical Analysis

Index Outlook | What would drive the market in 2021

Yoganand D BL Research Bureau | Updated on January 03, 2021 Published on January 02, 2021

Market awaits cues from Q3 numbers and Budget, among other things, in New Year

The domestic equity benchmark indices, the Sensex and the Nifty 50, witnessed wild swings in the year 2020 due to the pandemic. Amid volatility, the Sensex gained 15.75 per cent and Nifty 50 surged about 15 per cent in the past year.

Looking forward, factors such as the rollout of the Covid-19 vaccines and the start of the new presidential cycle for the US markets can lend fresh direction for markets, including India.

Other factors such as government stimulus, interest rates, global liquidity and the performance of the global economy are crucial too. On the local front, starting with third quarter results, the Union Budget, rupee movement, monsoon forecast, and economic revival are the factors to keep tabs on. Global commodity prices, like crude oil and gold, will also play a part in determining the market direction.

Nifty 50 (14,018.5)

Long-term outlook: Since bottoming out from the March 2020 low of 7,511 the Nifty 50 has been on an intermediate-term uptrend. After facing difficulty in surpassing the key long-term barrier at 12,000 in the month of October, the index eventually surpassed it in early November and subsequently exceeded the previous high of 12,430.5 recorded in January 2020. Thereafter the index didn’t face any major setback and began to register new highs.

The strong breakthrough of the major resistance turned support at 12,000 will act as a significant first major support for the index. An emphatic plunge below this can pull the index down to the next vital buttress at 11,000 and then to 10,000 where the 61.8 per cent Fibonacci retracement level of the current uptrend coincides. The 50 per cent Fibonacci retracement is at around 10,750. Hence, the levels 10,750 and 10,000 would be the lower boundary for the year. With Covid-19 vaccines and economic recovery on the cards, a conclusive fall below 10,000 is improbable unless any unprecedented event occurs.

On the upside, the index now tests a key barrier at the psychological level of 14,000. A clear breakthrough of this level can push the index higher to 14,500 and then to 15,000 over the medium to long term. Next long-term level the index could touch is 16,000. As the uptrend is accelerating sharply, any abrupt fall can’t be ruled out. For instance, the index had experienced one such steep fall on December 21, 2020, in which it had plummeted 3 per cent. But that was short-lived. Investors shouldn’t panic for minor corrective falls and could consider booking profits on a drastic corrective decline, if it occurs.

Short to medium-term outlook: The index is trying to surpass the key resistance at 14,000 as it continues to test this hurdle. An emphatic breach of this resistance can push the Nifty 50 index higher to 14,200 and then to 14,500 in the medium term. But inability to rally 14,200 can keep the index on a sideways path for a while. A fall below the 14,000 can pull the index down to 13,750 on the back of profit taking. Next key supports below 13,750 are at 13,500 and 13,000 levels. Nevertheless, a sharp fall below 13,000 can pull it to next base levels of 12,430 and then to 12,000 in the medium term.

Sensex (47,868.9)

Long-term outlook: Since marking a low at 25,638, the index has been on intermediate-term uptrend. While trending up, the index surpassed key resistance at 36,000 initially and then 41,000 in early November. Thereafter the index accelerated and exceeded the previous high of 42,273.8 recorded in January 2020 and continued to trend upwards. Recently, testing a key hurdle at 47,000-mark, the index breached this level in the past week by gaining 1.9 per cent.

Significant support at 44,000 will act as first crucial base and thereafter 40,000 is the key base to note over the medium term. But a sharp fall below the key long-term base level of 40,000 will bring back selling interest and downward pressure that could drag the index down to 37,500 initially and then to 36,000 over the long run. These levels will be the lower boundary for the year. On the upside, the index now faces a resistance ahead at 48,000. A strong break above this level can push the index higher to 50,000. But the psychological resistance level of 50,000-mark could attract profit-booking. Hence, investors should remain cautious at that juncture. A further break-out of 50,000 can pave the way for an up-move to 55,000 over the long run. Investors with a long-term perspective can remain invested with a stop-loss at 39,000.

Short to medium term outlook: As the index faces immediate resistance at 48,000, inability to move beyond this level can keep it consolidating sideways for a while. Next resistance is at 48,500. However, a slump below the immediate base level of 47,000 can bring back selling interest and pull the index down to test the subsequent support level of 46,000 over the short term. A further decline below this level can pull the index lower to 45,600 and then to 45,000 over the medium term. Next key supports are at 44,520 and 44,000.

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Published on January 02, 2021
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