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We see Nifty at 10,350, rupee at 62 by year-end: Laurence Balanco, CLSA

After consolidating for three years, the FMCG sector is seeing a momentum pick up.

, ET Bureau|
Updated: May 29, 2017, 10.37 AM IST
 Because it is in the emerging market basket where we typically see higher volatility on the moves, we wouldn't expect it to be a very smooth ride.
Because it is in the emerging market basket where we typically see higher volatility on the moves, we wouldn't expect it to be a very smooth ride.
Indian markets look constructive on charts from a longer term perspective, with the Nifty likely to test 10,350 lev els by the end of this year, said Laurence Balanco, global technical analyst at CLSA. In an interview with Sanam Mirchandani, Sydney-based Balanco said he expects the rupee to strengthen further to 62 to a dollar by the end of this year.

Edited excerpts:

Do you expect the record-setting rally in Indian markets to continue?

In the near term, some volatility is expected. If you look at the daily charts, they point to a shortterm correction, but we think the correction should be limited to the support area which essentially runs from 8900 to 9000 levels, but we would look at that as a buying opportunity. From a longer term perspective, the set-up on the Indian market is very constructive. Our very near-term target is the 10,350 area (Nifty) and then our ultimate target is at the 12,000 level. The 10,350 target can be hit this year. The 12,000 target view is on an 18-24 months basis. India peaked on a relative basis in August 2015 and we saw a correction period as it underperformed. What we have seen over the last 12 months is that India has resumed the longerterm uptrend. On a longer-term basis, India would be one of the markets that we expect to continue to outperform in relative terms versus the MSCI World and MSCI Emerging Markets.

Will this be a smooth ride up or will there be volatility on the way?

Because it is in the emerging market basket where we typically see higher volatility on the moves, we wouldn't expect it to be a very smooth ride. Ultimately, the pattern should be that it will create a series of higher lows so we would see those pullbacks as buying opportunities.

How do you see the rupee faring versus other global currencies? Do you see it strengthening further?

We think it will strengthen towards the 62 (per dollar) area by year-end.If you look at the trend of rupee weakness from 2014, we have seen that on the charts top out in 2016 and we can see further strength towards the 62 area.

In your note in March, you had said that banks are one of the areas that should lead the Indian market rally.Does the view still hold or are we likely to see a correction?

Not significantly. The pullback should be limited to their previous breakout area. On the Nifty Bank index, we have got 26,500 to 27,000 target.

Which are the other sectors that are looking favourable from a technical point of view?

Most recently, fast moving consumer goods have seen a momentum breakout. The sector had consolidated for three years and we are now seeing momentum pick up and so that's another sector that looks constructive and can continue to outperform. The sectors that are underperforming are pharmaceutical and IT. We have not seen a reversal or any bottom-fishing in that space yet.The pharmaceutical sector is weaker than the technology sector. We see some more downside risk there.

How do you expect US markets to perform compared to the emerging market index?

The emerging market index in 2016 broke its six-year downtrend of underperformance and it is set to continue to outperform. In the US, the Nasdaq looks stretched relative to the S&P, so we think there is some risk there. In the short term, technology stocks can correct back but the risk of a major top is probably months away rather than being imminent.

Which are your preferred markets?

Geographically, Europe and emerging markets standout. If you look at Europe relative to the world, it has broken the four year downtrend.That market has meaningful upside to re-rate after its underperformance.

On technical setup, how are the Chinese markets placed?

The Shanghai market has essentially been stuck in a trading range so that has generated relative underperformance but the view for the Hong Kong-listed China shares remains constructive and we are looking at the HSCEI moving up to the 11,000 area.

Where are the commodities headed, particular crude and gold?

They are stuck in trading ranges.Bottom end of the range for crude is the lower 40s and the top is around 55-57.

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