Is Nifty Prepping for a 37% Breakout?

Market Update - Monday, 19 Jan

The global landscape is currently defined by a sense of persistent geopolitical chaos. With unconventional narratives emerging from world leaders—such as the U.S. President making claims on Greenland following discussions about the Nobel Peace Prize—the environment has become high-risk and high-fear.

Consequently, precious metals are rising daily as investors seek safety. Amidst this noise, there is a noticeable lack of focus on the real economy.

Even with the national budget just ten or eleven days away, the topic is largely absent from public discourse.

• The Nifty has been stagnating within a 400-point range for six consecutive days. While it lost 0.42% recently, this consolidation is generally viewed as a positive sign for the long-term trend.

• Other indices show similar indecision: Nifty Junior dropped 0.24%, and Mid-caps fell 0.44%.

• Small-caps, however, appear weaker, losing 1.13% and breaking below their recent range and moving averages.

• In contrast, the Nifty Bank remains relatively intact, losing only 0.34% despite weakness in private banks.

• Gold and Silver continue their upward momentum, rising 1.87% and 3.74% respectively, with all momentum trends remaining positive.

Other Market Triggers

• Starting the day at 111 to 389, the numbers showed almost no change, characterizing what felt like a dead market.

• This lack of movement was driven by significant hits to major heavyweights. Reliance dropped 3%, Wipro fell 8%, and ICICI Bank declined 2%.

• Other major names like TCS, Infosys, Titan, NTPC, and Adani Ports were also down, along with Jio, which shed 1.13%.

• Within the private banking space, Kotak Bank and Axis Bank were the exceptions, managing to stay up. Other gainers included Bajaj Finance, Maruti, and Hindustan Unilever.

• Notably, ITC saw a rare gain of 1.1% after a very long period of underperformance.

• The Nifty Next 50 heat map told a story of two halves, particularly for public sector banks. While PNB and Bank of Baroda were up in the early hours, they were smashed down in the second half of the day.

• In contrast, CG Power continued its strong run, and both HAL and LTI performed well, successfully bucking the broader downward trend in the IT sector.

• Dr. Reddy’s and Hindustan Zinc also posted gains, even as many other stocks remained in downward mode.

• Wipro stood out as a major mover of the day for the wrong reasons, dropping 8% following weak Q3 guidance.

U.S. Market Update

• International markets showed a mixed performance in the previous session. The Dow Jones fell 0.2%, while the Russell index ticked up 0.1%, with most other indices remaining flat.

• Notable losses were seen in Palantir, CVS Health, ServiceNow, Salesforce, and Intel, which lost between 2.5% and 4%. It is important to note that while some of these stocks might be part of specific investment strategies, these mentions are not recommendations, and the standard disclaimer applies.

• The Nasdaq 100 heat map also reflected a mixed bag; while Adobe, Google, and Apple saw significant losses, chip-oriented stocks like AVGO, ASML, Micron, and AMD managed to move higher.

What to watch next ?

• The broader market remains in a sluggish state with no immediate signs of bullishness. A key trigger for a turnaround—a close above the previous two-day range—has yet to materialize, even for major stocks.

• Significant names like Reliance and ICICI Bank have taken hits recently, and the exodus of Foreign Institutional Investors (FIIs) continues unabated.

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What To Read This Week ?

📈 The Golden Ratio: Is Nifty Prepping for a 37% Breakout?

Is the stock market getting "cheap" without actually crashing? According to recent data from Invesys Capital, the relationship between the Nifty 50 and Gold is flashing a signal that has historically preceded massive bull runs.

The Shrinking Ratio: Equities vs. Safe Havens

For the past few years, the Nifty-to-Gold ratio hovered around the 4.0 – 4.5 mark. However, we have recently seen a significant correction in this metric, with the ratio dropping down to 2.0.

When this ratio falls, it means either Gold is outperforming Nifty significantly or Nifty is consolidating while Gold climbs. Essentially, Nifty is no longer "expensive" when priced in Gold.

A Historical "Buy" Signal (7 out of 8 Times)

History suggests that the level of 2.0 is a psychological and technical floor for this ratio. Looking back at the last eight instances where this ratio dipped below 2.0, Nifty has shown a remarkable tendency to bounce back.

Significant historical touchpoints include:

• 1996 – 1997

• 2002 (The start of the 2003-07 bull run)

• 2008 (Post-GFC recovery)

• 2011 – 2013

• The 2020 COVID-19 Crash

In 7 out of the last 8 occurrences, Nifty didn't just recover—it outperformed. Data shows an average gain of 37% in the Nifty within the 12 months following this signal.

The "Central Bank" Wildcard

While history favors the Nifty, there is a unique factor at play today: Global Central Banks. We are witnessing a "once-in-a-lifetime" surge in Gold demand as central banks worldwide aggressively stack bullion.

If Gold continues to be the preferred "neutral asset" for global powers, the ratio could technically slide even lower than 2.0. However, even in that scenario, the fundamental takeaway remains: Equities are becoming relatively cheap.

Future Outlook: Relative Value is Key

We are entering a zone where, compared to the safety of Gold, the potential of Indian Equities looks highly attractive. While the ratio might stay low for a while due to global macro shifts, the stage is being set for a potential Nifty rally as it regains its footing against the yellow metal.

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