Invest in Credit Risk Mutual Fund or not?

The auspicious month of October 2021 was full of action for the domestic markets. We saw a tug of war between both the parties with no result at the end of the month. We are saying this because the month of Sept 2021 ended near 17,600 mark for Nifty spot. Then after we witnessed a one-sided move on the upside in which the index Nifty spot registered an all-time high of 18,604. This happened during the first half of the month. The latter part belonged to the bear as they completely dominated and brought the index back near 17,600 mark. Thus eventually it was a month full of volatility but with no result. The index Nifty ended with marginal change. With regards to the derivative series; we saw some heavy shorts by the FIIs and other participants in the index futures but the rollover data indicated that much of them are booked. Thus the month of Nov 2021 would start on a fresh note.

Technically there are too many observations on different time scales. Starting with the monthly chart; we are witnessing a Doji kind of candlestick pattern which indicates a pause at current levels. On the weekly chart we are witnessing two consecutive red candles are a long time.

This indicates the now the bears have some upper hand. However, on the daily chart, we are witnessing; Nifty has been moving in a broadening pattern. The index got stuck at the upper range of that pattern during the month and we saw the corrective move. Now the index is hovering at the lower end of the broadening pattern which indicates that the low of 17,613 would be very critical in the coming week. Below that the index might find support near 17,300 mark which is the previous swing low and also the placement of the rising parabolic trend line on the daily chart.

That is the zone which could be the strong support in case of further selloff. We advise traders to start accumulating quality stocks in this range since the broader outlook is still very bullish.

On the upside; 18,000 would be a trigger level for the bulls. A sustainable move above the same might bring the markets back to new high in the month of Nov 2021.

At last, we witnessed the dominance and outperformance of Nifty Bank index during the month of Oct 2021. The Nifty Bank index not only surpassed our expected levels of 40,000 but almost tested the 42,000 mark. On the whole, it rallied more than 10% during the week and despite the correction in the second half of the month; the index managed to clock the gains of over 4% from its previous month. Now the range breakout in the index has a theoretical target of 44,000 – 46,000 but that might take a few months from here on. For the coming month; 38000 would be intermediate support. If this support is held then we expect the index to retest 42,000. On the other hand; we expect a bigger target of 46,000 till the time Nifty Bank is trading above 36000 mark.

(The author of this article is AVP, Technical Research at Anand Rathi Shares and Stock Brokers. Views expressed are personal)