So, we rang the curtain down on the trading for the year 2022 on Friday. For the record we had a gain of about 5% for the Nifty, which seems rather paltry, considering that for the past three years we have seen returns of 12%, 14.9% and 24.1%.
Our most recent memories are the freshest in our minds and hence, by comparison, we will think 2022 to be a poor year. But if one looks at the trough to peak move in 2022, one would find that it is actually around 24%—so not bad, if you managed to catch this move. Since the entire move occurred in the second half of the year, many people were indeed able to take advantage of the move.
In fact, that last decade of the market has been a pretty good outing for investors as we had just one losing year (2015)! Statistics also show that after a banner year the following one is always a limited gains year. 2012 saw 27.7% gain to be followed by 2013 with only 6.8% gain. In 2014, we saw a super 31.4% gain. This was followed by two low gain years. Perhaps owing to 2015 being a negative year (-4.1%), the 2016 also took its time with a small change (+3.0%). It was back to the pattern with 2017 (28.6%) followed by a small 3.2% gain for 2018. The subsequent three years were a great time for the market as mentioned earlier so the small gain for 2022 is not outside of the ongoing pattern. So, if the pattern has to persist, then we should be looking at a decent gain in 2023! Happy New Year!
Now, after that wee bit of forward gazing based on yearly patterns, let's look at more recent action in the market. I have been writing now for the past few weeks that it is time to be on the guard because pattern changes are visible and ever since the Nifty topped on Dec. 1 (expected was Dec. 5), the prices have been drifting down slowly. In the last week, we spoke about an oversold rally that may carry the Nifty back to 18,300 area and do so by Jan. 5. This feat was accomplished on Friday itself. Even the Bank Nifty managed to rally back smartly towards its target zone at 43,500. Those that were ready for a rally would have benefited from the clean rally that we got. See chart 1.
We have some time element left on this rally and possibly, we may see some consolidations or sector rotations with indices remaining within a range. The selloff on Friday could continue and create a pullback early next week but with quick liquidation of positions happening, moves are failing to sustain.
The banking pack continues to outperform the Nifty during the current rally. During the week, the Bank Nifty managed a 3.15% gain compared to around 1.68% for the Nifty. Overall, the Bank Nifty has managed to retrace around 70% of the fall from the all-time high while the Nifty has managed only 40% so far. Considering that the banking pack carries a high weight in the Nifty, one can well imagine how much contributions came in from other sectors! Moving forward too, the key is still with the banking and financial pack in seeing that the Nifty remains afloat.
But returning to the larger picture, we gather from Chart 2 (daily Nifty) as to why 2022 was a difficult year for most players and rather severe on the portfolios.
It has been one of the most volatile of years, with sharp turnarounds from swings to highs and lows within the year. Notice that there hasn’t really been any areas of consolidation after a move has occurred. Each of these swings has an A or V shaped turnaround. Such moves are the toughest ones to trade. Also note overall that the market didn’t really go anywhere- a regression line for the year is a gently up sloped one, placed around the 17,400 levels at the end. No wonder money making was tough in 2022.
Looking further forward into 2023, let me do some crystal ball gazing. In the projection for 2022 made last year January, I had stated that the high for the year would be made in late November. The Nifty high was made on Dec. 1 and since then there has been a slight slide. My take is that this slide should continue, in fits and jerks, till around March or extend to even the first week of April 2023. The projected low for the year, therefore, is in the last week of March to first week of April. Following this, the market should get into some consolidation for the next couple of months and possibly put in some higher bottoms, preparatory to an advance. Just as in 2022, the second half of 2023 promises to be a bullish period and, in all probability, should carry a lot more thrust compared to what we saw in 2022. Thus, I expect 2023 will finish far better than the highs made in the first five months of the year. However, it is also to be noted that the first half of the year may be somewhat trying owing to volatility and perhaps adverse news flows, keeping the confidence low. The upshot here is, expect some down bias with volatility in the first half. When you speak of it, seems like it can be handled, but when you are in the middle of it, life becomes tough. So, unless you plan for it in advance, handling it may not be easy.
Using the 50% rule of Gann, we can expect the 17,000 level to be the lowest Nifty level for 2023 (to be recorded by March-April) and there could be some oscillations in the 17,000-17,400 zone to build a base for a move higher. The confirmation of this would be when prices move past 17,600 after having hit the low earlier. That would be the big buy signal for the next year and I expect this should come around June-July. The upmove can take the Nifty to a target around 19,500/20,200 by December. If the pace is rapid, then it is possible that we may surge to a high by September and then see the market drift for the balance months. This also means that in case the Nifty goes below 17,000, the bullish expectations should be put on hold until new evidence for it emerges. If lower targets are to be updated, I shall do so if this situation comes to pass.
Situation in Bank Nifty may be similar and the level around 38,500-39,300 looks to be the low areas that may be reached. One caveat to carry here is a break of this support may be of worry and hence this support zone needs to be watched. On the higher side 47,500 or even 51,000 looks possible to achieve. As in Nifty, low first and highs towards end of the year.
2023 ought to see a return to action by mid and small-cap space. The wall of retail money had kept the market well defended over the last year and more and in the coming year, we ought to see a very good gain from this space. It would not surprise me to see peak returns (intra-year) of as much as 40% and the year may finish with around 25% plus gains for the good stocks from these two areas. This doesn’t mean that it will be a broad-based rise all around but that good stocks will see substantial moves. Therefore, it is going to be a good time to for retail investors to build some wealth.
Forewarned is always forearmed, goes the cliché. The idea of making forecasts is to have a plan of action ready. The future will unfold the way it is going to. But certain setups can clue us in about how it may unfold. Since we shall be analysing the markets every week into the future, we will always have a chance to put checks and balances along the way to see if our expectations of how 2023 shall unfold is working out or not.
The game plan can include trading with a negative bias for the first part of the year or running longs only in short bursts. Also, investments to be quite selective, with money to be funnelled into the market with regularity in the first half of the year. Caveat is to buy the right stocks. So some churns may happen to the portfolio. Finesse all these as you go along.
Happy New Year, people!
CK Narayan is an expert in technical analysis; founder of Growth Avenues, Chartadvise, and NeoTrader; and chief investment officer of Plus Delta Portfolios.
The views expressed here are those of the author, and do not necessarily represent the views of BQ Prime or its editorial team.
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