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2019 stock market outlook: Invest in largecaps, midcaps; IT, pharma, FMCG, infra stocks offer good bets

Updated: December 29, 2018 12:51:35 PM

In the year that has gone by, markets faced many events like potential threat of trade wars, rising of interest rates in the US, very sharp spikes in Crude Oil prices, volatile domestic currency, regional conflicts in the Asia Pacific getting escalated between the US and the North Korea at one point of time, the State Elections in India and more.

sensex, rbiImportantly, the year that has gone by, has also remained important from the technical perspective.

By Milan Vaishnav, CMT, MSTA

In the year that has gone by, markets faced many events like potential threat of trade wars, rising of interest rates in the US, very sharp spikes in Crude Oil prices, volatile domestic currency, regional conflicts in the Asia Pacific getting escalated between the US and the North Korea at one point of time, the State Elections in India and more. All of these factors kept the markets on tenterhooks for couple of times in the year.

Importantly, the year that has gone by, has also remained important from the technical perspective.

Speaking purely from the technical perspective, there were two technically important events that took place in 2018. The early 2018 saw the NIFTY testing the 11,000 mark. After the brief corrective move, the NIFTY took out that previous high and marked a fresh lifetime high near 11760 later in the year. This phase of the up move came with a sharp negative divergence on the RSI, which is a lead indicator. This resulted in to the level of 11760 becoming an immediate top for the Markets for the near term.

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The second important technical event happened in the first week of October 2018. After the Markets marked the high at 11760, the sharp correction followed. This saw the Index breaching its 30-month long upward rising channel. The Index slipped below the lower trend line of the channel giving a negative breakout. This lower trend line of the channel, being rising in nature, is now expected to act as resistance and prevent any clean breakout on NIFTY going ahead.

From peak of over 10%, the NIFTY has returned just over 1.89% on YTD basis wiping off bulk of its gains. As we step into 2019, with General Elections looming, we are placed on a very trick turf. From the technical perspective, NIFTY will require real effort to move past 11760. The level of 11760 will post a serious resistance in the near term. On the higher side, we do not expect NIFTY moving beyond 12400-12600 levels in the coming year. On the lower side, the level of 10,000 will be a very major support area for the Markets in the coming year. Any breach of this level will infuse structural weakness in the Markets. The coming year may see the Markets remaining in a broad range not making any clean directional moves on the upside.

The retail investors will have to remain extremely stock specific in the coming year. Exposures to defensive like Pharma, Consumption, IT and Infrastructure stocks along with very select Auto stocks can fetch good returns for them. Mainly Large caps and very select Mid caps should be preferred.

The domestic currency too is expected to remain range bound against the US Dollar. We expect the Federal Reserve to slow down in rising the interest rates. This will prevent the US Dollar from naturally gaining strength and this will benefit the domestic currency to remain stable. The zone of 68-68.80 offers multi-year support zone for the US Dollar against the Rupee. We do not see INR appreciating beyond this range of 68 – 68.80. On the lower side, 73 – 73.50 range is not expected to be taken out. The USD-INR pair is broadly expected to remain in this range.

The author is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services. The views are the authors’ own.

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