Laurence Balanco, a renowned chartist at CLSA, has predicted a further correction in India’s Nifty 50 index, expecting it to drop significantly in the coming weeks. The index, which has already fallen 7% from its record high of 26,277 reached on September 27, 2024, may decline even further according to Balanco’s analysis.
In an exclusive interview with CNBC-TV18, Balanco outlined his projections for the Nifty, including his expectations for a steep fall towards 23,300 in the next 20 trading sessions. Let’s dive into the details of his predictions.
Why Does Laurence Balanco Predict a Nifty Correction to 23,300?
According to Balanco, the Nifty is likely to drop further, potentially hitting 23,300 due to a combination of technical factors. He pointed out that the index’s downward momentum has accelerated, forming a classic “head and shoulders” pattern. This pattern, with highs in August, early October, and mid-October, signals a potential reversal and a move back toward the long-term trend.
The most crucial technical indicator Balanco highlights is the 200-Day Moving Average (200-DMA), currently positioned at 23,389. Historically, the Nifty tends to test this level during periods of correction, and it serves as a significant support level. In his view, the index could drop at least 5% from its current position, reaching the lower boundary of its uptrend channel from the lows of 2023.
How Significant is the 200-Day Moving Average in Predicting Nifty’s Future?
Balanco emphasizes the importance of the 200-Day Moving Average in understanding Nifty’s long-term trends. The Nifty has tested this key level twice in the past 18 months. The first instance was during the March-April 2023 selloff, and the second was an intraday reaction to the general elections.
Balanco expects the index to test this level for a third time in November 2024, stating that the 23,300 level aligns closely with the 200-DMA. If this level holds, it could act as a strong support point. However, if broken, the market could see a deeper correction.
Which Sector Faces the Highest Downside Risk According to Laurence Balanco?
In Balanco’s view, Public Sector Undertakings (PSUs) face the highest downside risk in this market environment. Specifically, the BSE PSU Index has already fallen below its 200-DMA, making it particularly vulnerable to further declines.
Earlier this month, Balanco had flagged downside risks in two key PSU stocks: Coal India and Power Finance Corporation (PFC). His warnings were validated as these stocks continued to show weakness, and the entire PSU sector is now at risk. He explained that while private banks are holding their ground, PSU banks have started to underperform, following a period of significant outperformance since the COVID-19 lows.
Why Are PSU Banks More Vulnerable Than Private Banks?
Balanco points out that PSU banks had enjoyed robust performance from the COVID-19 lows up until early 2024. However, since then, they have started to decline, particularly after breaking below their 200-DMA. In contrast, private banks have remained more resilient, holding their ground even in the face of market turbulence.
The underperformance of PSU banks relative to private banks, and their sector-wide break below the 200-DMA, positions them as the most vulnerable in Balanco’s analysis. He cautions investors that these stocks could see further downside pressure as the market correction unfolds.
What Should Investors Expect in the Coming Weeks?
Balanco expects the Nifty to correct by over 1,000 points from its current levels within the next 20 trading sessions, projecting it to reach 23,300. His forecast implies a potential downside of over 5%, pushing the index back towards its long-term trend support.
However, while this correction is anticipated, Balanco advises investors to watch for signs of support around the 200-DMA level, as this could provide a stabilizing force in the market. If the index manages to hold this level, it could set the stage for a recovery, but a break below could trigger a deeper selloff.
Key Takeaways from Laurence Balanco’s Nifty Prediction
- Nifty Correction Expected: The Nifty 50 is expected to correct to 23,300, marking a 5%+ drop from current levels.
- Head and Shoulders Pattern: A classic reversal pattern is indicating further downside.
- 200-Day Moving Average: The index could test its 200-DMA for the third time in 18 months, which sits at 23,389.
- PSU Sector at Risk: Public Sector Undertakings, particularly PSU banks, face the most significant downside risk.
- Private Banks More Resilient: Private banks are holding ground better than PSUs in this downturn.
Investors should stay cautious in the short term and closely monitor the Nifty’s movement around the 23,300-23,389 levels, as this could determine the next major market move.
FAQs
1. Why is Laurence Balanco expecting the Nifty to fall further?
Balanco expects further downside due to the acceleration in downside momentum and the development of a “head and shoulders” pattern, indicating a potential reversal.
2. What is the significance of the 200-Day Moving Average for Nifty?
The 200-DMA is a key technical level that acts as long-term trend support. The Nifty has tested this level twice in the past 18 months and is likely to test it again soon.
3. Which sector is the most vulnerable according to Balanco?
Balanco sees the PSU sector, particularly PSU banks, as the most vulnerable to further downside, having already broken below the 200-DMA.
4. How much does Balanco expect the Nifty to fall in the next 20 trading sessions?
Balanco predicts that the Nifty could fall over 1,000 points to reach 23,300 in the next 20 trading sessions, implying a drop of more than 5%.
5. What could happen if the Nifty breaks below the 200-DMA?
If the Nifty breaks below the 200-DMA, it could signal a deeper correction, potentially pushing the index further down from its current levels.
6. Are private banks safer than PSU banks during this correction?
Yes, according to Balanco, private banks are holding their ground better, while PSU banks are underperforming and appear more vulnerable.
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