Nifty is in last leg of bull run; broader markets to see sharp correction, cautions Phillip Capital

Nifty is in last leg of bull run; broader markets to see sharp correction, cautions Phillip Capital

The Nifty50 index has been on a roll since the Covid-19 pandemic. The headline indices, broader markets and even the second rung counters- all have been able to deliver multibagger returns to the investors in the last few years. Benchmark indices, Nifty50 and BSE Sensex, have been hovering around their record highs.

Brokerage firms have turned cautious after the secular rally. Phillip Capital has warned investors about the ending of the current market rally and it expects a sharp correction in the markets. The 10-year bull run the market had started in 2014 and has given 3.4 times returns with Nifty rallying from 6,500 to 22,500 levels, at a CAGR of 13 per cent.

“However, we see signs of exhaustion in Nifty50 as we feel that markets are ‘highly overbought’ on long term time-frame,” said Phillip Capital. “Nifty is presently in a ‘greed’ cycle and we are in the last leg of the rally after which we expect a healthy price as well as the time correction to play upon the markets.”

Nifty50 is trading at an important trendline resistance on quarterly charts with highly ‘overbought’ momentum oscillators, said the brokerage, which sees limited upside and high probability of correction in the index.

Phillip Capital sees an intermediate topping out of Nifty with the present rally being the last bull leg of this cycle. “We see a sharp correction in the Nifty which can take the index towards 18,750-18,550 levels. The worst-case scenario for the markets is 16,000-15,500 levels,” it cautioned.

Brokerage firms and analysts across the board are more concerned about the broader market space, which has outperformed the headline indices in the longer run. However, time wise correction may last for a minimum of three quarters (until December 2024) and maximum 6-7 quarters (December 2025).

Midcaps and smallcap indices are on important channel resistance levels on quarterly charts, said Phillip Capital. “We expect broader markets to ‘underperform Nifty’ in this correction,” it said. “The probability of outperformance of broader markets is very low on immediate basis and if that happens it will be on back of very high volatility and the correction thereafter will be extremely painful.”

The peculiar nature of the smallcap and midcap rally in the Indian market can be best seen from price and time correction in better-quality stocks and strong rally in low-quality and narrative stocks over the past six months, said Kotak Institutional Equities.

“It may be best to move out of low-quality to high-quality names, although the high-quality stocks face ‘number’ challenges and the low-quality stuff ‘narrative’ issues,” it said.

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