The Nifty which forms the barometer of the Indian Stock Market returns has given positive returns for the year 2016 & 2017. Nifty prediction premises is to generate alpha portfolio returns with keeping the benchmark in mind.
We all are looking to create wealth in the long term and that forms the core of AlphaTrading.
When major brokerage houses are given Indian Stock Market the “overweight” retrospecting qualitative and quantitative measure what can one expect the year of 2018.
GDP at 8% is an achievement so is maintaining it. GDP to grow beyond that is a task which brings with it the limitations. Performing positively with the current standard deviation level can be unfolded with the current flow of events. Especially when the current market price forms the upper part of the standard deviation it’s not long before the mean reversion comes to play.
Current Price to earning is expensive can be justified only with expansion to earning to justify the current trend is very important.
Let’s have a look at the Historical PE Ratio to understand the outlook better.
Earning on the basis of QOQ to YOY one could predict if the current price to earning is justifiable or not. Also, expansion of the earning will give the opportunity for more growth.
Markets have not been good to the investors at these record price to earning ratio levels.
Let’s have a look at how well the price to earnings ratio is placed historically.
At these price to earning levels, even the smallest negative global news could have a deterring impact on the benchmark. In such a scenario the small, medium & micro are the most affected.
Random walk theory importance was felt when most of the academians were estimating a market crash in the year of 2017. GST & Note Demonetization turned out to be the sweet poison.
Unpredictable structural change by the current government can have a long-lasting impact. Nevertheless, with fewer opportunities having a minimal shopping bag sounds ideal.
Valuations are generally high in the expansionary market. Looking at the YOY returns market might have still some steam left. Still few quarters could continue with the current trend.
Correction in short term cannot be denied. Maintaining a good portion of the portfolio in debt could be profitable in long run.
Stable Investor has worked out the year on year market growth kindly find the same below.
At current levels, profit booking could be one of the main reason for the stock market to correct. Expecting a huge return for the year 2018 should be ruled out because of expensive valuations. Most of the time during the government structural changes the money change hand more often than not.
Having a look at the rolling returns prepared by StableInvestor shows that last few years the market has been flat. Expecting the market to perform positive is a high probability event. Provided the earning expansion across sectors to justify the same.
Below is the rolling return nifty chart.
“We changed a lot economically in 2016 and 2017, the fruits of which in the corporate earnings are going to come in 2018. This is very significant. Even some of the CEOs themselves will be surprised to see the earnings growth in their own companies, a positive surprise.” Porinju Veliyath to Economic Times
Macro Technical Outlook
Technically the market has been performing higher tops and higher bottom which is a positive sign for markets.
Every correction in the stock market has been taken positively. Every correction is being treated as a buying opportunity currently. Except for some part of the year 2016, the nifty benchmark has been positive on the moving averages.
Nifty Prediction Arc confirms that every drop in the stock market has been treated like a buying opportunity.
“We expect the negative impact from GST to gradually fade over the coming year while delivering several medium-term benefits including improved efficiency, formalization of activities and price transparency,” Goldman Sachs
Buying Winners & Selling Losers should be the ideal lookout.
With the current run up a correction of nifty 9000 cannot be ruled out. The nifty predication arch chart level confirms the same.
Over To You
An ideal expectation for Nifty for the year 2018 on the upside with 60% probability should be around 10% – 20% on the downside with 40% probability one can expect the correction to touch at 9000 levels.
If you have points to add I would be more than happy to hear you in the comments section. A constructive contribution is always appreciated.
But in the meantime, here’s a tip you can use right away. High Valuations give your higher hedging opportunities. Put them to use for your benefit.
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