Nifty at 20,000 – Bhaav Bhagwaan chhe

21 Jul 2023 , 09:21 AM

Back in 2006, the stock market was in the midst of a frenetic bull rally; almost secular in nature. For the first time in 2006, the Sensex (not the Nifty) had touched the 10,000 levels. Asked about his opinion on the Sensex touching 10,000, the legendary Rakesh Jhunjhunwala had a very cryptic answer, “Bhaav Bhagwaan Chhe.” What this colloquial Gujarati piece of market wisdom means is that one should never question the price in the market because that is the only truth. Today, exactly 17 years later, Nifty has come within striking distance of 20,000 while the Sensex is now getting close to 70,000. Once again, who are we to question the wisdom of market prices. As Rakesh Jhunjhunwala would have probably repeated his statement, “Bhaav Bhagwaan Chhe.”

The amazing 50 day journey of the Nifty

It was in the last 50 days of trading that the Nifty and the Sensex pierced through some very critical resistance levels with great felicity. The table below captures the price and daily returns of the Nifty since June 01, 2023. That is around 50 days and about 35 trading sessions.

Date	Daily High	Daily Return	Daily Low	Daily Return	Daily Close	Daily Return
20-Jul-23	19,991.85	0.71%	19,758.40	0.16%	19,979.15	0.74%
19-Jul-23	19,851.70	0.16%	19,727.45	0.19%	19,833.15	0.42%
18-Jul-23	19,819.45	0.44%	19,690.20	0.65%	19,749.25	0.19%
17-Jul-23	19,731.85	0.70%	19,562.95	0.67%	19,711.45	0.75%
14-Jul-23	19,595.35	0.14%	19,433.50	0.25%	19,564.50	0.78%
13-Jul-23	19,567.00	0.30%	19,385.80	0.12%	19,413.75	0.15%
12-Jul-23	19,507.70	-0.04%	19,361.75	-0.23%	19,384.30	-0.28%
11-Jul-23	19,515.10	0.41%	19,406.45	0.41%	19,439.40	0.43%
10-Jul-23	19,435.85	-0.45%	19,327.10	0.12%	19,355.90	0.12%
07-Jul-23	19,523.60	0.06%	19,303.60	-0.36%	19,331.80	-0.85%
06-Jul-23	19,512.20	0.47%	19,373.00	0.17%	19,497.30	0.51%
05-Jul-23	19,421.60	-0.06%	19,339.60	0.21%	19,398.50	0.05%
04-Jul-23	19,434.15	0.46%	19,300.00	0.34%	19,389.00	0.34%
03-Jul-23	19,345.10	0.75%	19,234.40	1.10%	19,322.55	0.70%
30-Jun-23	19,201.70	1.00%	19,024.60	0.87%	19,189.05	1.14%
28-Jun-23	19,011.25	0.97%	18,861.35	0.79%	18,972.10	0.82%
27-Jun-23	18,829.25	0.57%	18,714.25	0.36%	18,817.40	0.68%
26-Jun-23	18,722.05	-0.18%	18,646.70	0.00%	18,691.20	0.14%
23-Jun-23	18,756.40	-0.69%	18,647.10	-0.60%	18,665.50	-0.56%
22-Jun-23	18,886.60	0.06%	18,759.50	-0.19%	18,771.25	-0.45%
21-Jun-23	18,875.90	0.19%	18,794.85	0.72%	18,856.85	0.21%
20-Jun-23	18,839.70	-0.22%	18,660.65	-0.31%	18,816.70	0.33%
19-Jun-23	18,881.45	0.09%	18,719.15	0.05%	18,755.45	-0.37%
16-Jun-23	18,864.70	0.38%	18,710.50	0.22%	18,826.00	0.74%
15-Jun-23	18,794.10	0.13%	18,669.05	-0.11%	18,688.10	-0.36%
14-Jun-23	18,769.70	0.22%	18,690.00	0.31%	18,755.90	0.21%
13-Jun-23	18,728.90	0.51%	18,631.80	0.39%	18,716.15	0.62%
12-Jun-23	18,633.60	-0.23%	18,559.75	0.02%	18,601.50	0.21%
09-Jun-23	18,676.65	-0.54%	18,555.40	-0.32%	18,563.40	-0.38%
08-Jun-23	18,777.90	0.21%	18,615.60	-0.11%	18,634.55	-0.49%
07-Jun-23	18,738.95	0.62%	18,636.00	0.56%	18,726.40	0.68%
06-Jun-23	18,622.75	-0.09%	18,531.60	-0.28%	18,599.00	0.03%
05-Jun-23	18,640.15	0.36%	18,582.80	0.56%	18,593.85	0.32%
02-Jun-23	18,573.70	-0.04%	18,478.40	0.08%	18,534.10	0.25%
01-Jun-23	18,580.30		18,464.55		18,487.75

Data Source: NSE

There are some interest inferences if you look at the Nifty movement over the last 50 days or 35 trading sessions.

• In the last 50 days, the Nifty has given 8.07% returns on a point-to-point basis. If you look at just the July returns, it is 4.12%. These are amazing point to point returns for a broad based index.

   

• If you loo at the 35 trading sessions on a closing basis, daily returns have been in the negative for 7 days only, while they have been positive for 28 days. In fact, if you average the daily returns over the last 35 days, it is an impressive 0.23% per day.

   

• The daily average returns have been around 0.20% on the lows and 0.22% on the highs. That means, the markets have been consistently making higher highs as well as higher lows; a classic bullish signal for the markets.

   

• In the process of this rally, the Nifty has broken through a series of strong resistance levels like 18,500 followed by 18,800, followed by 19,000 and even 19,500. All these key resistance levels on the Nifty were broker decisively with volumes and all in a matter of just 35 trading sessions. That is what makes this rally so special.

What has triggered this unprecedented rally in the Nifty?

Frankly, rally of this magnitude and intensity can never be based on one factor alone. There were several factors at play. Let us look at 6 such triggers that resulted in this phenomenal returns on the Nifty.

1. The markets were actually celebrating a divergence away from hawkishness. The RBI was one of the first central banks to stop rate hikes after the last hike in February. The Fed followed with its pause much later in June. However, what the broad message that has come out is that central banks are either at the peak or very close to peak interest rates. That is value accretive to the valuations of equity and debt and that has been one of the biggest factors spurring the markets higher.

    

2. One cannot talk about the rally in the Nifty and not talk about the FPI flows. FPIs infused $11 billion in May and June and another $4.5 billion in the first 20 days of July. The deluge has just about started and it promises to recoup the outflows between October 2021 and June 2022 in the next few months itself. After all, against an outflow of $34 billion in 9 months, we have inflows of $16 billion in less than 3 months.

    

3. India has found itself in the typical Goldilocks economy effect. There is a double advantage that Indian economy is enjoying at this moment. Firstly, the consume inflation has fallen faster than expected. Secondly, the industrial production has picked up faster than expected despite higher cost of funds and weak demand globally. That is a signal that the Indian economy has taken hawkishness in its stride.

    

4. At the level of global macros, the oil prices have stabilized in the range of $70-75/bbl in the Brent Crude market on an average basis. In addition, the dollar has shown signs of weakening, which has strengthened the rupee. Robust FPI flows have also helped. Steady oil prices are essential to keep India’s trade deficit and current account deficit in check. A steady rupee ensures that foreign investors do not lose out on dollar returns.

    

5. Sector rotation has been the name of the game in recent times. Sectors like banking, autos, FMCG, capital goods and even IT have taken turns to lead the market higher. What is more gratifying is that sectors like capital goods are attracting a lot of FPI interest, which shows that there are huge bets on a revival of the capital investing cycle. That is likely to be long term positive with a strong multiplier effect. 

    

6. Finally, there is the FOMO factor or the fear of missing out. Most of the traders who were short in the market have been squeezed in this rally and they are unlikely to come back in a hurry. Also, the low VIX under 11 shows that the risk in the market is still very limited and volatility is in check. That is likely to be a big positive that will drive continued interest in Indian markets.

So, where does Nifty go from here?

That is the million dollar question, but Nifty 20,000 is just a reminder that India is a much bigger secular story. Here is an economy that is likely to see its GDP growing from $3.5 trillion to $5 trillion in the next 5-7 years. Also, here is an economy that is going from a per capita income of $2,500 to a per capita income of $5,000. That is likely to be prise open a huge consumer goods and services market.

India presents a market where some of the biggest trends of the coming years like green energy, decarbonization, digital technologies and advanced healthcare are likely to play out. The Nifty and the Sensex are today reflecting that long term story, more than anything else. After all, when the market wisdom believes that all is well, we have to built our investment strategy around that belief.