USD INR and Nifty co relation

 The USD/INR exchange rate and the Nifty 50 generally share an inverse relationship in the short term, but are largely uncorrelated in the long term. When the USD strengthens against the INR (the exchange rate goes up), the Nifty tends to fall, and vice versa.

In the short term, this relationship is primarily driven by Foreign Institutional Investors (FIIs)

Capital Flight: When foreign investors pull money out of Indian equities, they sell Nifty stocks and convert their rupees back to dollars. This heavy selling drops the Nifty and simultaneously increases the demand for USD, causing the USD/INR rate to rise

Capital Influx: Conversely, when global liquidity is high and FIIs pour funds into Indian markets, they buy rupees to invest in Nifty stocks. This pushes the Nifty up and the USD/INR rate down.

Long-Term Decoupling

Over longer horizons (e.g., 5+ years), the two usually diverge: 

• Structural Fundamentals: Over time, the Nifty is driven by the earnings growth and economic fundamentals of its underlying companies.
• Currency Depreciation: The Indian Rupee naturally experiences gradual depreciation against the USD to account for inflation differentials. However, this gradual weakening is often beneficial for Nifty heavyweights with global exposure (like IT and Pharma) because it boosts their export revenues.

Diverging Trends

Occasionally, the traditional inverse correlation breaks down. For example, during certain periods of global commodity shocks (like rising crude oil prices), a weak rupee can drag down the broader Nifty despite heavy corporate earnings growth, temporarily altering standard correlations

Why this is important?

The Government has removed the capital gains tax for foreign money on G Secs. This is expected to bring an influx of dollars and a stronger rupee. 

A strengthening rupee often leads to a stock market rally. Hence watch the rupee.

Nifty - Perspective from Elliot Wave

The markets are currently moving aimlessly. There seems to be no clear cut direction right now. Let us look from the Elliot perspective. 

1. The markets made a significant low of 22182 on April 2nd. It rallied from there to 24602 on April 21st. From there in 1 month, it has come down to a low of 23262 on May 13th.

2. If we take 22182 - 24602 as wave 1, it covered about 2420 points. Corrective targets down would be 23670, 23392 and 23105.

3. Only 23105 remains pending. Below 22700 we are headed towards new lows and above 24118 we are headed towards new highs.

4. The area 24300-24600 was a massive support zone earlier and it will not clear that very easily.

In a nutshell, the markets have taken more time to correct but not yet breached the 61.8 pc of the up move. The 3rd wave when it starts would be a powerful up move taking us to new highs.

Commodities - The ongoing boom and the next opportunity

 Commodities have entered into a secular bull run. With the help of a few charts, I will demonstrate how in the last 10 years commodities have gone multiple times.

It started with precious metals like Gold and Silver.

 

Then it extended to crude oil and metals like copper. Charts are shown below:

Now, the boom is spreading to agri commodities like rubber, cotton and so on. You can track these prices here:

https://tradingeconomics.com/commodities

The whole objective of this exercise is to identify stocks from these sectors and bet on them to make a killing from multi baggers.

What do the Elliot waves say?

Last week, we focused on RSI as a Buy or Sell signal. This week, let us look at what the Elliot waves say.

Elliot helps in taking a longer term view of the markets.

The chart is of the entire up move started from Covid low bottom of 

Wave 1 7552 - 18604= 11052 points. This took approx 19 months)

Wave 2 18604- 15191= 3413 points (31 pc correction) approx 8 months

Wave 3 15191 and ongoing since July 2022.

Wave 3 targets could be 26243, 29249 or 31760

Elliot does not put too much focus on the time lines but on price.

Implications for the longer term:

Once Wave 3 gets over at approx 29k then entire up move from 15k to 29 k will corrected. This can easily take 12 to 18 months. Post this 1 more rally of 10 12 K points and then a multi year correction.

Let us re visit this hypothesis end of May when the wave 3 will be closer to maturity.

The importance of RSI as a Buy Sell Signal

 The markets give us multiple opportunities to buy and sell. How do we know when to buy and when to sell? Let us explore that.

There is a simple technical indicator available called RSI. Readings over 70 means markets or stocks are overbought and readings below 30 are an indication of markets or stocks being oversold and a time to buy.

Let us look at a couple of charts of Nifty on daily and weekly basis to illustrate this.

On the daily timeframe in the last 3 years, there have been at least 5 sell opportunities and 3 buy opportunities.

Let us look at the weekly chart below:

 

Here also, in last 10 years, at least 4 Sell and 3 buy opportunities have come. In Weekly RSI, these are opportunities for a bigger rally and the current opportunity is a similar one.

You can explore further using the below link:

https://stockcharts.com/sc3/ui/?s=%24NIFTY

Bottomline:

RSI is a very simple and powerful technical indicator to identify Buy and Sell opportunities. This is independent of the fundamentals and purely on Technicals.

 

Target 25 K Nifty Achieved. Book Profits

 On May 15th 2024, when Nifty was around 22K, I had given a target of 25k. The target is achieved and now one can book profits.

I expect some kind of correction before the next leg up.

On Target for Nifty 25k

 Just a quick update on the January post. We are on track for Nifty 25k by H1.

1. If anyone wants to buy any stocks, now is a good time.

2. For the rest of the year I am very bullish on commodities especially precious metals.

Everything will go up for sometime followed by a big correction.

As Day follows Night and vice versa correction will follow the bull run. For now enjoy the ride!!!

Elliot counts revisited

 Revisiting the Elliot counts,

1st wave 16828–20222 3394 points

2nd  wave 20222 18838; 

3rd wave unfolding

3.1 18838 22124       3283 points   

3.2  23124 - 20875 or 20481

3.3 ???

3rd wave target can be 23k to 26k 

Then 4th wave to follow and 5th truncated if 3rd wave is extended.

So target for Nifty 26 to 28k in H1.

Strategy book profits from 25k onwards

May 23: Election Results played out as usual

 The Karnataka results are out and as expected the Congress has won the elections. I had predicted that the markets would do well till May and here we are a rally of about 1600 points on the Nifty. What lies next for the markets?

1. After the Karnataka elections now there will be people clamoring saying that the BJP is finished. 1 swallow does not make a summer. There would be elections at State level but Modi Government remains set for third term in 2024.

2. The monsoon forecasts do not look too good and that should cap a runaway rally in the markets. The monsoons have been good for at least the past 4 5 years and now right now a poor monsoon is on the cards.

3. The markets have rallied about 1600 points from the bottom in Jan Feb and are now within touching distance of previous highs. A correction is round the corner.

4. The recession has started in US and huge layoffs in IT companies in the US and in India are also muted pay hikes. The sentiment has been damaged. when the sentiment is damaged, people start spending less money. It is a self fulfilling prophecy.

5. We have come to the end of the rate hike cycle and that should bring relief to the home loan folks.

The markets should correct and that gives us a chance to reflect on what next to be done.

April 23: Markets should still rally

 The month of March has come and gone. The Markets were down by about 1.5 pc. This is the 4th month in a row markets have closed negative, Let us see what April has in store.

1. By law of probability, 5 red monthly candles have almost never happened. So April should be a positive month. The market has been oscillating around the 17000 mark.

2. The US Bank crisis should blow over. Inflation is rising and it is a localized issue. Interest Rates India should also rise by 25 basis points.

3. The Karnataka elections in May and results on May 13th will be a trend decider for the Indian markets. Till then the markets should rally.

4. In times of uncertainty, Gold always rises and Gold will do well.

5. The Indian markets have shown great resilience in times of global uncertainty so I expect them to do well and at least reach 18500 if not higher.

6. The Ukraine crisis will again come to a boil with Spring here and a fresh offensive being readied for a launch.

If I was an Indian investor, I would lock into high interest rates, focus on my short term debt portfolio, avoid equity markets and book profits in the existing portfolio.