Mkt can drift up in Dec, Nifty may see 5800: Barclays

In an interview to CNBC-TV18, Dhiren Sarin, technical analyst, Barclays says he is hopeful for the Indian market. He says that some optimism can return to the market as volatility has been dropping steadily across assets. "At this point, it is very early to suggest strong gains, but atleast we can see a drift higher, " he adds.

Also read: Nifty may see 5770, if it holds 5500: ICICI Direct

Below is the edited transcript of Sarin's interview.

Q: The market has been rangebound for two months straight. Technically, what is it pointing to in December?

A: Yes, the market has been very rangebound. Volatility has been steadily dropping across assets in equities, foreign exchange or fixed income. In December, however, we see a glimmer of hope. We see some optimism that can return. Seasonally, there is a very good track record of return to a bullish state of affairs into December. It could be because of the S&P or the Sensex or generally, a weakening dollar backdrop. This should set up some gains in December. At this point, it is very early to suggest strong gains, but atleast we can see a drift higher.

Q: What kind of trading position would you take going into December? Is it now a buy-on-dips market? What targets would you set on the Nifty when talking about a drift up?

A: For the Nifty, one thing to notice is, in September we saw a huge burst of buying interest which pushed the market up and charts gapped higher. That gap comes in around 5500- 5450. This should provide good support for any buying interest. So, if we get dips towards that, it is a good buying opportunity. A push upto 5800 happens to be a more important resistance area. Once we overcome that, then we can see another three to four  percent of upside at the minimum. However, for the time being we are taking a step at a time and looking towards 5800.

_PAGEBREAK_

Q: How does the chart of Nifty compare with couple of the other global indices ? If there is a drift up how is the Nifty or Sensex likely to perform vis-à-vis its other peers?

A: It is quite idiosyncratic in India in general whether it’s the rupee or the Sensex or Nifty. These markets aren’t following the global footprint at this point of time. We do believe though if bullish euphoria kicks back in into the S&P and the Dow, then the Sensex and Nifty should start to benefit in the least.

For the time being, we don’t think they are very much tied together, I think the Nifty and Sensex can drift up on its own legs just generally given the chart patterns and the strong bullish move we saw in September which the market is still holding above those levels.

Q: We have seen the rupee crumble quite a bit. It is down over 8 percent from the levels it was trading at in September. How does the chart of rupee look like? What is the indication about the future on the rupee?

A: The rupee is interesting, because if you look all the way across the world, the Brazilian Real, another high yielder is under-performing quite persistently. The rupee is a similar scenario. It seems like the market’s picking off some of these high yielders and actually pushing them lower in currency space.

So, the INR is another one that’s suffering. We see the INR depreciating a little bit more towards 56-56.50/ USD, but thereafter we would start to look for top, particularly given the bullish equity seasonality which we see in December. If optimism starts to return, then the INR can also start to benefit a little bit. However, we are a little bit patient on that, watching out for the signs. We wouldn’t be surprised if we see the INR start to recover after dollar INR has hit around the 56 area in December.

Q: What signals do you see on heavyweights like Reliance, a bunch of the oil and gas faces and FMCG names like Hindustan Lever? The problem these last two months is not how much things have not risen, but that these stocks have been falling?

A: As far as the individual stocks are concerned, we usually tie it to the broader picture, the more macro outlook. A lot of these firms can start to do well especially if the indices are showing signs of resilience. With the Sensex and Nifty starting to lift up, and like in the US, in NASDAQ, the tech sector is recovering slowly and we are starting to see the material sector also recovering. I think industries associated with these sectors should start to out-perform.

Q: How does this 5800 target on the Nifty tie in with what you are targets are for the S&P? Is this what you largely expect across other global markets as well, a small leg up in December?

A: We do think the Indian equity market is a marginal under-performer so the S&P can out perform a little in December. We are looking towards 1440-1475 in the S&P but those are the peaks of the year and those should be difficult to overcome. So, within the context of the wider ranges, we are looking for marginal leg higher overall and the Sensex and Nifty to under-perform just in a small way.

_PAGEBREAK_

Q: Which other asset class do you expect to do well in the month of December? You spoke about December being a good month for equities; which other asset class would you look at?

A: The one that strikes out is gold and silver; precious metals are doing quite well. Gold has recently broken above its range of the last week or two. We are looking for gains towards 1,800. We are also secular bullish on gold.  We have been bulls on it for the last 10 years and we continue to think that there are further gains in store, well into next year towards all time highs. So, these are good levels to be entering into gold and silver bullish positions.

Q: What about something like Brent crude?

A: We have had a wide range on Brent crude this year, all the way from 128 USD to about 88 USD on the downside. Unfortunately, we are right in the middle of this range, so no major technical signal. However, we do expect an upside drift within this range, especially given our view of a largely weaker dollar and improving sentiment in market. If Brent crude starts to break 115 USD, then we can start to see stronger gains.

Q: Going into next year though any longer term targets that you are keeping for the Nifty?

A: We expect next year to be quite volatile, quite in contrast to this year which has been decreasing in volatility. So, we are a little bit cautious next year. The Dow industrials, if it gets up to its peak into year end; it is only about four percent from its all time highs, so it is very close to important technical levels.

We think the market is likely to start to struggle later in Q1 and Q2, so we won’t get too aggressive on targets just yet. We are taking it a step at a time for the Nifty. We could see 6000, but then we think that the market can start to struggle. So that’s a story for later, in Q1 next year.