In my previous post on INR, on 8th July 2018, I wrote, “If we look at the given chart we can see that INR made a high of 68.85 on 27th August 2013 and had been trading below that level since then. Once INR breaks above 69 we will see some quick depreciation of INR to 73 – 74 levels.”
Since then INR has deprecated significantly and is currently trading at 73.75 levels which has hit my expected target. While most of the other analysts were surprised by the sudden weakness I think this was on cards for a long time.
If we look at the current chart of INR the target for the pattern comes at 76 -77 and INR should depreciate to those levels in the next 1.5 years.
Indian equity markets and emerging markets, in general, underwent significant corrections recently. Although I don’t try to contemplate the reasons for market movements as I believe that there can be many reasons for markets to move and it’s hard for our mind to fathom all of them. The recent correction in EM assets could be because of cash outflows from EM assets. With Global central bank reducing liquidity from markets and FED tightening interest rates, US assets have become much more attractive, hence the situation may persist for another 12 – 18 months.
This could also be partly due to hike in crude oil prices which creates current account deficit for many EM countries and the global turmoil in the global political environment (there is always something interesting happening in global geopolitics)
Putting these explanations aside let us look at the price target for the current correction in the context of Indian markets. Since elections are near and if the current government loses the election the correction in the market can be quite significant. Hence I am contemplating two scenarios.
If we look at the long-term yearly chart of Sensex the trend line support exists at 33000 levels. Which means that Index should not fall below 33,000 otherwise long-term trends will be broken and we will be in a multiyear bear market. We can see the support marked on the chart with an arrow. A multi-year bear market should not happen unless we have a major geopolitical event and break down in global trade system. Hence this scenario looks highly unlikely to me and I believe that most likely index will bottom out at 33,000.
In the second scenario let’s assume that the current government loses power and the selloff intensifies and becomes more India centric then chart can look something like this.
Which means that we can see the formation of a head and shoulder pattern on the chart with the neckline at 33000.
So the current fall should continue till the market hit 33000, then there should be a bounce of 3000 points, which will form the right shoulder and sell off should follow once we break the neckline and market should fall to 26000. This should bring us back to the lows of November 2016.
If we look at the weekly chart, we can clearly identify the channel which shows the 26000 levels as marked by the arrow.
If we look at the small-cap index which is already battered in recent fall (-30%), we may see levels up to 12500 on BSE small Cap index which is another 10% fall from the current levels.
Summary:-
1 INR has hit my target of 74, may further depreciate to 76 levels.
2. Indian market will continue to fall; my preferred scenario is that Sensex will find support at 33,000 levels.
3. In case things turn bad and Modi government loses the election the market may further slide to 26000
4. The five-year target for nifty stays at 15000, - 18000 levels.
5. The market will become extremely attractive if it falls to 26000.
