Further upside seen for Indian stock market
THE Nifty 50 Index, which represents the top 50 largest and most liquid stocks listed on the National Stock Exchange of India (NSE), has been one of the better-performing indices this year. At market close on Aug 29, the contract has rallied by 6.83 per cent year to date.
We are bullish on the Indian stock market and we see further upside potential in the Nifty 50 Index due to a favourable mix of geopolitical and demographic tailwinds, supported by a flurry of government incentives. We see the index testing the key near-term dynamic support-turned-resistance level at around 19,500. This level coincides with the 25-Day Moving Average (25MA). We view any near-term pullbacks as an opportunity for entry.
India’s ascent to the forefront of the global stage is perhaps best epitomised by the recent landing of the Chandrayaan-3 spacecraft near the Moon’s south pole, becoming the fourth country to ever land a spacecraft on our lunar neighbour. We believe that India is well-positioned to emerge from China’s shadow as the next economic powerhouse.
From a fundamental perspective, India’s geopolitical status and position as a “friend-shoring” destination for companies looking to “de-risk” from China amid souring US-China tensions has resulted in favourable tailwinds. Prime Minister Narendra Modi’s first official state visit to the US back in June showcased the strong bilateral relations between the two nations, with chipmaker Micron investing up to US$825 million in new factories in the country. Amazon also raised its investment in India to US$26 billion by 2030. We believe that India could emerge as one of the biggest beneficiaries amid rising geopolitical tensions and US-China decoupling.
Another reason for our bullish view is India’s favourable demographics. India not only has the largest, but also the youngest population among developed economies. Data from the United Nations shows a median age of 28.2, well below China’s 39.0. This means that a majority of India’s population are of working age, which should translate into a large labour pool that will make the nation globally competitive in terms of wage costs, helping it to attract foreign investments. Additionally, structural reforms and a flurry of government incentives to boost local manufacturing by the Modi-led government further reinforce our bullish outlook.
On a technical perspective, we hold a bullish outlook as:
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1. The Relative Strength Index (RSI) corroborates our bullish thesis as it is still in bullish territory at around 51. We believe that the contract has further upside before hitting the overbought level of 70. As long as the RSI value remains at or above 50, the bullish momentum remains intact.
2. The formation of a “Golden Cross” further validates our bullish view. The 50-Day Moving Average (50MA) crossing above the 200-Day Moving Average (200MA) is typically indicative of strong uptrend momentum.
In conclusion, we hold a bullish outlook on the Indian stock market and the Nifty 50 Index. There is considerable room for upside and growth in India, fuelled by structural changes and geopolitical trends. We expect the index to test the near-term dynamic support-turned-resistance level at around 19,500. If broken, we see the index sustaining its bullish momentum and climbing further upwards to around the 20,500 level by the end of Q1 2024.
Any short-term pullbacks can be seen as an entry opportunity. Investors can gain exposure to the Indian stock market via ETFs such as iShares MSCI India ETF and iShares MSCI India Small-Cap ETF. Other options include the SGX GIFT Nifty 50 Futures contract, as well as the Indian rupee.
The writer is investment analyst at Phillip Nova
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