Technicals for week ending – 7th October 2016.

Note : This is not a recommendation and I am not a registered analyst, these are just my observations and an assessment of the positives and negatives from a longer term point of view.

Nifty Weekly

Keeping this one short as there is not much change in the data. Instead, will focus a bit on the relative strength ratios of few key indices. Below are 3 charts of broad indices Junior Nifty (now known as Nifty Next 50), Nifty 500 and the Midcap Index – all divided by the benchmark Nifty index to arrive at a ratio chart.

Since these are ratio charts – a rising ratio means that the numerator is outperforming the denominator. Now, looking at the history of these charts from 2003 onward there are few periods where all these ratios have risen in unison and those periods have seen some abnormal gains. The current trajectory of these ratios looks similar to the periods mentioned above- yes, we are seeing some mid/small cap stocks that have given phenomenal returns and it is in line with what we have seen previously. Whether we are near a top – I do not know and there is no way of telling that. BUT for NOW just like in the past these ratios are rising and we are seeing the broad market outperform the benchmark. So from a longer term perspective the data suggests to keep a positive stance on equities as an asset class.  

Lastly, the FMCG index has outperformed the Nifty in times of distress as FMCG is a defensive bet. As of now the FMCG/Nifty ratio broke down, so from the ratio it looks like there is no rush to the defensive names yet. 

Broader indices RS ratios rising and FMCG index RS ratio falling is a powerful combination and can't take this lightly I guess. Anyways, these ratios are slow to turn and we cannot base decisions on a single data point but it helps to keep these in mind while judging the longer term outlook.