Where will Nifty head in April amidst election dynamics, seasonal trends, and sectoral shifts?

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If we look at the returns during election period in the last 20 years, 75% of the time April months have been positive. Top contributors to Nifty50 last month were Auto and Banks, which contributes around 43% to Nifty.

As if we step into new financial year, elections bring in a different perspective to prices which are near record peaks. Ideally Q4 should provide the ideal distraction from a benchmark oriented approach and allow a stock specific approach. 

Into this mix, we may bring in the seasonality effect as well, for signs as to weather some of the laggards have the potential to stage a reversal. In the last 10 years, 60% of the time Nifty50 has gained an average of 5% in April. 

If we look at the returns during election period in the last 20 years, 75% of the time April months have been positive. Top contributors to Nifty50 last month were Auto and Banks, which contributes around 43% to Nifty. We haven’t seen much of a participation from IT, Energy and Oil sector which together contributes around 27% to Nifty.

These sectors need to shed their troubles to lend momentum to Nifty’s upsides. 90% of the IT stocks are trading below 50 day SMAs and 40% of the stocks have closed below 1 month low. 

IT stocks have had a tough time since January 2024, but is about to find some solace in April, which has been seasonally a good time for IT in general. Infact 81% of the time in the last 12 years, Nifty IT gained an average 4% in April. 

Also, the Nifty IT index is nearing 50% fibo retracement of the October 2023-January 2024 move, and with 30% of the stocks having moved into the oversold region, it may not be long before IT turns higher.The need for more actors to take centre stage is pressing, as Thursday saw a clear case of rejection trade in the face of record peak.

It was evident that while traders were keen on bargain hunting early in the week, which ultimately forced short covering rally as the week progressed, with an urgency prompted by derivatives’ expiry, the turn lower from the record peak illustrates a strong unwillingness to chase prices higher. This however is not an outright signal for a collapse, but we would need to get above 22350-22410 to nurture hopes towards a 22700-23000 push. 

On the downside, we have ample supports near 22200 as well as 22050, which could ensure that we may not see a collapse per se. That said, the real risk is that of momentum staying away from either sides, for atleast a week, before earnings numbers flow in. Meanwhile Bank Nifty had a more measured run up when compared to Nifty, ensuring that the decline from the top was less threatening than Nifty. We are hopeful of a swing higher and push above 48000, as long dips do not extend beyond 46700.

First published in Financial Express

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