Nifty outlook: After best August in 9 years, can Nifty defy the odds of a ‘sorry’ Sept?

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MUMBAI: The benchmark Nifty50 is on course to deliver its best performance in August since 2012. The index has managed to rise 6 per cent so far this month, aided by buying from domestic institutional investors and gains in some of the index heavyweights.

After consolidating for nearly two months in a narrow range, the index was able to break the shackles and move above the 16,000 mark earlier this month. However, these gains haven’t brought joy to all market participants, as the broader market lagged with Nifty Smallcap 100 and Nifty Midcap 100 indices slipping close to 2 per cent and 5 per cent, respectively.

Given the stellar performance of the 50 pack in August, it is natural to assume that it may take a breather in September. If history is any guide, September tends to be lukewarm for the Indian equity market, with the 20-year average monthly return coming in at a mere 1.3 per cent.

That said, September has also been witness to some of the biggest market crashes on Dalal Street over the past 20 years, including the IL&FS crisis of 2018, the Lehman Brothers’ collapse in 2008 and the ‘dot com’ bubble burst in 2000.

Brokerage firm ICICIdirect says the benchmark indices can defy the odds of a “Sorry September” as the recent momentum hints at more upside. “Going ahead, we expect largecaps to outperform, which would gradually drive Nifty towards our revised target of 17,000-17,200 in the coming months,” the brokerage said in a recent note.

Here are a few factors that could work in favour of the Nifty50 in September:
US Federal Reserve Chief Jerome Powell was able to cajole the markets into accepting its decision to start reducing the amount of bonds the Fed will purchase from the market going ahead. Powell, speaking at the Jackson Hole Symposium on Friday, said inflation and job growth were strong enough for the Fed to start tapering this year. Cleverly, though,he detached the taper of the $120 billion bond buying program from any increase in interest rates. For that, Powell suggested, the US economy still had miles to go. Powell’s comments should help ease concerns of foreign investors and help net FII inflows to India.

After the travesty of the early months of the world’s largest inoculation drive, India is finally getting its act together. On Friday, the country vaccinated 10 million adults against Covid-19 with nearly half the population now getting at least one dose. In the coming months, most of these adults will be given their second doses, which should help push up India’s fully vaccinated percentage from 10 per cent currently. Rising vaccination will also allow states to keep Covid restrictions at minimum and help the economy take advantage of the busy festive season.
The rollover of F&O positions by traders to the September derivative series was bullish, particularly, for the benchmark index. Traders rolled over 84 per cent of their positions against a three-month average of 81.6 per cent. Importantly, traders were hesitant in carrying their short positions in the Nifty Bank index to the September derivative series, which brokerage Sharekhan feels creates room for short covering in the index next month.

Brokerage firm ICICIdirect believes investors should stick to the “buy on dips” strategy that has worked well in this market over the last 17 months. “Healthy consolidation should make the larger trend healthier and offer incremental buying opportunity. Thus, dips should be capitalised on as incremental buying opportunities,” the broking house said.

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