Will Nifty favour investors post US elections? Volatility offering a good entry opportunity

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November 3, 2020 9:59 AM

Among sectors, chartists find the banking sector, and consumer goods to continue their outperformance in November.

The Nifty IT gained as much as 3.23% on Thursday to close the session at a 16-year high after Tata Consultancy Services reported stellar Q2FY21 results suggesting the worst may be over for the sector.Looking at the past five US Elections, the Nifty 50 has helped investors pocketed an average of 6% returns post election till the end of the year three times.

NSE Nifty has remained range-bound so far since the middle of October, after rising 10.8% from the end of September. Volatility has gained nearly 25%, and it is likely to stay higher owing to the US Elections. However, as we saw earlier this year, volatility could turn out to be an opportunity as well. Historically, such elevated volatility has proven to be a good entry opportunity, according to ICICI Direct. “In the coming month, we believe global volatility would remain high ahead of the US presidential elections,” they added.

Nifty headed to life-time highs by year end

Looking at the past five US Elections, the Nifty 50 has helped investors pocketed an average of 6% returns post election till the end of the year three times. The current consolidation in Nifty goes along the views of analysts at ICICI Direct. They say that it signifies a robust price structure, making them confident of their view that sees Nifty at 12,400 by December this year. “Hence, any dips from here on should be used as an incremental buying opportunity as we do not expect the Nifty to sustain below the key support threshold of 11000-11200 range,” they added.

Who’ll participate in the rally?

It is not just benchmark Nifty in which ICICI Direct seeks an upside. even the broader markets are expected to participate. In the past seven weeks, the Nifty midcap index corrected by 10% from August highs while the Nifty small cap has corrected 10% in the last eight weeks. Both the indices have, since 2009, corrected to such levels post a rally of more than 25-30%. “In our October edition, we had mentioned the maturity of price wise and time wise correction in the broader market, which has worked well as the Nifty midcap and small cap indices have seen rejuvenation of upward momentum along with strengthening of market breadth,” the report said. Currently nearly 65% of Nifty Midcap and Small cap index components are trading above 200 days SMA compared to last month’s reading of 62%.

Among sectors, chartists find the banking sector, and consumer goods to continue their outperformance in November. The IT sector has been leading the pack and might continue to do so in the coming weeks, along with realty stocks. Meanwhile, metal and pharmaceutical stocks might trim their leading position and fall in line with the market movement now.

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