It was a day of bargain hunting after key indices on Thursday witnessed the worst daily fall since March 2020. Many valuation parameters have eased in the recent correction, even as the market is still a bit away from what analysts say are reasonable valuations.
For example, the BSE market cap stood at Rs 253 lakh crore and at FY22’s advance nominal GDP estimate of Rs 236.44 lakh crore, the market cap-to-GDP ratio comes in at 107. While a value above 100 on market cap-to-GDP ratio, also known as the Buffett Indicator, is deemed expensive, the level for India has come off from April high of 116 level. Besides, Nifty50 now trades at a 12-month forward PE ratio of 17.5 times, which is in line with the pre-Covid three-year average and just marginally above the pre-Covid five-year average of 16.9 times.
Support from Asia
Markets from Tokyo to Seoul were trading up to 2 per cent higher today, despite an overnight fall in US stocks. Earlier today, China’s central bank announced cutting of five-year loan prime rate (LPR) — which many lenders base their mortgage rates — to 4.45 percent from 4.6 per cent. On the other hand, Japan’s core consumer inflation in April exceeded a central bank target of 2 per cent for the first time in seven years, but due to rising import costs, not strong demand. The two Asian peers were up over 1 per cent each. Korea’s Kospi and Hong Kong’s Hang Seng rose up to 2 per cent. Taiwan’s key index was up 0.9 per cent.
Analysts noted that the index had found support at 15,750 a couple of times in the last 4-5 days, which made it a tweezers bottom pattern. There were a chances that Nifty50 could see a meaningful rally around those levels. Nity50 had closed at 15,809 level on Thursday.
“Hidden positive divergence is seen in Nifty50’s daily RSI, where the RSI is making lower low and prices are making higher low, which is indicating a minor pullback on upside. The Nifty50 would be out of the woods only above the 16,400-mark, which stands near 23.6 Fibonacci retracement of the recent fall,” YES Securities said in a morning note.