LAURENCE BALANCO Global Technical Analyst, CLSA

The benchmark Nifty is likely to remain in a range of 9700 to 10,200 in the short term but the longer term target of 12,000 remains intact, said Laurence Balanco, global technical analyst at CLSA. In an interview with Sanam Mirchandani, Sydney-based Balanco said he would be most overweight on the banking space in India, but when it comes to technology and pharmaceuticals, he would prefer the former. Edited excerpts:
Indian markets suffered a bout of correction recently but have since rebounded and the Nifty is back above 10,000 mark. Do you see the bounceback sustaining?

If you look at the charts essentially since the August half, the market has gone into a trading range of 10,200 at the top end and 9,700 at the bottom end.We continue to consolidate in that pattern. In the very short term, we can see more gyration within that range but it doesn’t break the longer-term uptrend and the breakout that we saw earlier this year when we cleared the 9,100 area. Ultimately, the market moves higher, but in the very short term, I see more of a trading range. In the worst case scenario, if we do break below 9,700, the market could correct back to the 200-day moving average that we saw earlier this year. Worst case scenario, back to 9,200.That should be seen as a buying opportunity. We still have 12,000 target for the long term, which is an 18% upside. I still think it is constructive and the bias is to the upside.

Do you see more volatility going forward?

If one looks at the global trends, markets continue to be in a low volatility environment. In US markets, if you look at the major indices, all are making new highs. The volatility in the Indian market will be limited to the 9,700-10,200 area. Ultimately, I expect a breakout of that area in continuation with the longer term uptrend. We are going to stay in a relatively low-volatility environment through the fourth quarter.
Some strategists feel other Asian markets have a better risk-reward. Do you agree?

India has been a pretty consistent performer within the emerging market space and a consensus overweight market. As far as the consensus goes, a lot of people are really well positioned in India versus for example China where people are probably neutrally weighted. It is fair to say that the broader emerging market index relative to the developed market index does offer more compelling upside and India will still benefit from inflows into the emerging markets. But potentially in the short term we can see markets like China outperform for example. In the short term, China does offer the best momentum to the upside and it is where participants are still underweight relative to its benchmark whereas India has been an overweight. But that doesn’t take away that India remains in an uptrend.

How will rupee fare going ahead?

The key feature on my technical chart was the breakdown from the 2016 topping pattern that the dollar formed which still suggests the 62 downside target. Interestingly, the recent period in September of dollar strength failed at the initial breakdown area which is around 66-67. It is still one of the stronger set ups and I do think it can outperform and be one of the stronger Asian currencies.

Indian markets are hovering around lifetime highs. Which are the sectors that are looking favourable from a technical point of view?

The longer-term set up where we have seen leadership and where we continue to see leadership towards the 12,000 target area for the Nifty is still the banking sector. That would still be my number one overweight.Two of the under-performing sectors for some time have started to stabilize. The pharmaceuticals and the technology sectors have started to consolidate after under-performing in the past two years. That suggests we are getting broader participation and opportunities within the market. I would rate technology ahead of pharmaceuticals if one were looking for bottom fishing opportunity.

In a note in March, you recommended buying Axis Bank and HDFC. What is your take now?

Both Axis and HDFC still look constructive. Axis has lagged, so it ultimately will play catch-up at the end of the day. If you look at Axis Bank, we think it can trade back to the highs seen in 2016 and 2015, which is around the 640 area. The trend can extend from there.

What is your view on commodities, in particular crude and gold?

Those two unfortunately are the two commodities that remain range-bound. If you look at Brent, ($) 58-59 is the top end of the range, and bottom is around ($) 42-43. Recently, it traced to ($) 58-59 and we have seen Brent fall from there. It will be capped at ($) 58-59. Gold remains range bound below the ($) 1,380-1,400 area and it is finding some support at ($) 1,250-1,260. The more interesting metals are base metals where the strongest technical set ups are.


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