Nifty is firmly stuck in a bear market

As always, the major market index could move in three ways through 2016. Of these, the downwards move seems most likely. The Nifty is firmly stuck in a bear market. It hit a historic high of 9,120 in March and it has since tested support at the 7,500-7,550 levels twice.

The index has traded below its own 200-Day Moving Average (200-DMA), since late August. It would have to break out above that (about 8,200 for the simple 200-DMA) to make a sustainable positive move. On the upside, there would be a lot of selling above the 8,500-mark, assuming the Nifty rallied to those levels.

On the downside, the total retraction has so far, been about 17 per cent. Indian bear markets generally tend to see much deeper corrections. So, the prognosis is bad. If the support at 7,500-7,550 is broken, the next support is at around 7,200 and below that, there's support ranged in bands of roughly 300-350 points.

There were a few clear technical themes in 2015. Small and medium-sized stocks did well. Large stocks did better than giant-sized stocks. The Nifty was down by five per cent, year-on-year while the Nifty Next50 (which tracks the stocks 51-100) was ahead by 11.4 per cent. This indicates the influence of enthusiastic retail buying in a period when FIIs became hesitant. Retail, and domestic institutions to some extent, tend to focus on relatively smaller shares.

The biggest gainer sector-wise was media, which saw a rise of over 16 per cent year-on-year, fuelled by performances in TV18, TV Today, Inox, Zee Entertainment, etc. Many of these stocks are currently trading near their 52-week highs. So, there is recent momentum in this sector.

Old faithfuls, pharmaceuticals and FMCG, registered marginally positive performances as did automobiles and financial services. Pharma has seen news-based shocks whenever adverse the US FDA reports have hit the news. This is an unpredictable factor. The automobiles performance is heavily driven by Ashok Leyland and Maruti.

In financial services and in the Nifty Bank, performances have been dragged back by terrible situation of PSU Banks. NBFCs have done well, by and large (if we exclude government-owned PFC and REC) and so have private banks. This looks likely to continue with PSU banks liable to experience more bearishness.

It was a terrible year for metals and for commodities in general. Technically things seem to remain grim for those sectors and for realty.

There's a question about sustainability of retail interest. Historically, retail interest tends to come in at the last stages of a bull market and to persist into the succeeding bear market as large institutions gradually book profits. Retail buying collapses after retail investors sustain heavy losses for a while. This pattern could repeat in 2016 and if it does, the performances of medium and small stocks may deteriorate.

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