If Nifty achieves 6350, next target is 7000: Barclays

The impressive rally witnessed by Nifty in all likelihood will continue and the index may even see levels higher than 6350 in 2014, says Dhiren Sarin, Director of Technical Strategy of Barclays.

Getting overtly bullish, he said Nifty can target 7000 if it crosses 6350 provided global conditions support.
 
In the near-term, 6000 remains a good base but advises investors to get aggressively bullish if it conquers 6350. Below is the verbatim transcript of his interview on CNBC-TV18 Q: Since we last spoke to you the Nifty has rallied 15 percent in the last 3 months facing a hurdle only at that 6350 level. Do you see the index crossing that zone between now and the end of the year? A: That has been an impressive rally from the Nifty. It has outperformed a lot of it peers in the region. If you look at Thailand, Indonesia, they are nowhere near their peaks, whereas the strong rally in Nifty has brought it to a very important tipping point; 6350-6360 area is a peak from 2008-2011. We think that ultimately gives way and our targets next year are higher. Initially there might be a bit of a struggle. We already saw that over the last few weeks. We saw a pullback towards 6000, but roughly as long as the 6000 area holds, we may see levels much beyond 6350-6360 area. Q: Even at this point would you put a long trade on the Nifty if you have missed the bus so far since you essentially think that the trend is up? A: Yes. We think that ultimately one should be involved in this. It is a market that is clearly looking resilient. If you look at US equities they are quite supportive. So sentiment for stock in general is looking quite good. This is quite different from other asset classes, but here we are talking purely the equity market. if we are involved in this market we would want to put stop just below 6000 expecting further gains and also getting a bit more bullish if 6350-6360 area gives way. That is where we can increase our confidence for this trade. Q: The S&P 500 is up 25 percent YTD. What do you foresee over the next couple of months for the Dow and the S&P? Do you see them scale new highs or will they just stall around current levels? A: These are key areas. It is a very good point we are having this conversation because not only do we have the Nifty reaching up to its peaks which have been in place for several years; you have S&P, the Dow Industrials hitting psychological hurdles, round numbers. If you look at S&P 500 at 1800, the Dow Industrials at 16000, both these numbers are levels that the market is watching. Sure enough, if we start to get closes through these the headlines will be splashed across the news. Big, big round numbers being taken out and we see further gains. November is a bullish seasonal month for both the S&P and Dow. In fact if you look at data from 1950 November post the strongest month of the year, so it is not surprising to see these markets do quite well. December is also pretty good for US stocks. It is what we call the Santa Claus rally. We think these markets will continue higher into year end. Next year, for Q1 we potentially see a bit of a correction, but for now the trend is still higher. Q: What are the triggers which will make you aggressively bullish on the market? What will take the market above that 6350 zone on the Nifty? A: It is all numbers here. We can see another 150 points through 6350 initially, then we get a pullback and then eventually we want to see a push towards 7000. Markets do not move entirely on their own, what we would want to see is increased optimism in the region. We would want to see the market being able to digest the backdrop of higher US yields, continued gains for S&P Dow and also commodities start to do slightly better. All this will support the Nifty and Sensex. So let us just watch these Indian equity markets, but keep in mind that global backdrop does have to remain supportive and it is not just about that Nifty chart and the peaks we mentioned. _PAGEBREAK_ Q: The rupee has seen a dramatic recovery from the August lows of 68-69. What could your range be for the rupee? A: The rupee has not followed a path which is any different for last 5 years. In 2008, the market lurched higher about 35 percent, then we had a pullback for several months if not years and then we lurched higher again 32 percent, a pullback and then we lurched higher again 35 percent. So these numbers are quite consistent. What we have seen is after this push is higher, after this bearish move for rupee what we get is a bit of consolidation, a bit of a sideways move which goes on for months, maybe even years. So we do not think Dollar-INR can take out 70 anytime soon. Rather we will probably get a steady drift towards 60, potentially 58-59, but thereafter we would start to become strong buyers and we would expect a push back up towards 65-66. Ultimately this is the range we are looking at, around 58 to about 66 in next 3-6 months. Q: You said it is very important to monitor the 10-year yield. What is the key level that you are watching there? A: If we saw the run up in Dollar-INR and the collapse in the Nifty earlier in the summer, it was purely driven by the higher US yields. So let us watch these yields. Right now we can pull back to 2.40-2.30 percent in US 10-year rates and the top side is three percent. This three percent is a very key level, again a round number, just like we talked about the Dow, the S&P 500 round numbers tend to be important. So, if 3 percent gives way which we think it will next year, it would be interesting to see the response in the equity markets. Can equity markets digest higher yields? If we start to see a day or two of rally in equity market along with US yields going to 3 percent, that would be a very encouraging sign that US stocks can finally start to break free and push higher. Q: What is your pecking order in equities? Which are the best looking charts and which are the ones to avoid? A: The charts that are looking the best are the US equity markets, the European equity markets. So our pecking order would be first being involved in the US equities, S&P 500, Dow Industrials. Second, we would want to look for the European recovery. If you look at the CAC 40, it had a strong collapse after the credit crisis and it has barely recovered, so it is a bit of a catch up trade here. The markets are just starting to takeout peaks that we saw 2-3 years ago. We like the CAC very much in France. Italian and Spanish equities can catch up of course. Of course we do like the Indian stock market as we discussed earlier, but where we become a bit more involved in that is once those peaks give way that we saw being formed on several occasions in the last 4-5 years.