Short-term pullback likely; Nifty could test 18,400 level: Indiacharts' Rohit Srivastava

Rohit Srivastava, founder, Indiacharts.com

Nifty50 at 19,000 or Nifty50 at 18,400? In the next three weeks, the second scenario has a higher possibility, believes the founder of Indiacharts' Rohit Srivastava.

After flirting near an all-time high level of 18,889, the benchmark Nifty50 fell to 18,750 levels on June 19. "We are going through a period of low India VIX for a while now. Low VIX levels can lead to a short-term market top, followed by a pullback," Srivastava told Moneycontrol.

India VIX or the fear gauge is currently trading near one-year low levels.

That said, once the pullback is complete, the upward trend will be strong. "We are looking at an 18,400 level on the downside. If it breaches that then a deeper cut to 18,200 is possible," he said.

Srivastava is an Elliott Wave analyst. According to the theory, the stock market follows a pattern of five waves up and three waves down to form a complete cycle.

"Currently, we are in Wave 3. The first wave was in 2020 when markets rallied from 8,000 to 18,000. Then, in Wave 2, we went through an 18-month long consolidation, which lasted till March 2023," he said.

Srivastava expects the index to double in this wave, similar to Wave 1. That means a target of 35,000 on the Nifty 50 over the next 2-3 years.

"Dollar index and interest rates are the two factors working in favour of India. We are set to see interest rates in India fall a lot more than they have before. The 10-year bond yield has already cooled from 7.75 percent to 7 percent. There's a possibility that yield falls below 5 percent," he said.

The RBI's two objectives – inflation and growth – are seemingly on the right track. Data released on June 12 showed Consumer Price Index inflation fell to a 25-month low of 4.25 percent in May, while industrial production jumped by 4.2 percent in April.

Economists see conditions evolving such that the RBI's Monetary Policy Committee (MPC) may start lowering the repo rate in the last quarter of 2023-24.

Meanwhile, the bull market in the dollar index has also peaked, with the USD-INR rallying from 38 in 2008 to 83 levels.

"The rupee has now made at least four attempts to surpass 83. So that level is clearly difficult to break. If I take a trendline of all the lows, then I get a level of around 81.72. Once that is breached, the rupee will continue to strengthen against the dollar," Srivastava said.

A lower dollar means higher foreign inflows into emerging markets, including India.