In recent times, there has been a notable shift in the mood of the market. This change can largely be attributed to the performance of the US markets, particularly the Nasdaq and the S&P 500. As we analyze the movement of the Nifty, one of the key indices of the Indian stock market, alongside the US markets, we can observe a significant correlation between the two.
If we examine the trends starting from October, we can clearly see the synchronization between the Nifty and the US markets. The Nifty, represented by the orange line, closely mirrors the movement of the blue line, which represents the US market.
Although the Indian market has outperformed the US market in the past, especially during the COVID-induced market decline in 2020, the recent performance shows a strong correlation with the US markets.
However, it is essential to note the recent developments in the US markets. The S&P 500 is nearing its previous high of 4800, and the Nasdaq has experienced a breakout on its previous high at 16801.
Yet, shortly after these breakouts, there has been a dramatic fall, with the Nasdaq experiencing a decline of 500 points in just a couple of days. This decline is rather concerning, especially considering the critical juncture at which these markets find themselves.
Whenever there is a market reaching an all-time high, several scenarios can unfold. The market might proceed to surge upwards, break even, or experience a breakdown from that point. Currently, it seems that there is a possibility of a false breakout in the US markets, followed by a potential decline. If this occurs, it will undoubtedly impact global markets, with Indian markets being the mother market in this case.
The impact of this is already evident in IT stocks. If we examine the performance of IT stocks, we can see an immediate decline of a couple of percentage points.
Moreover, Indian IT, which typically tracks the Nasdaq, has not kept pace with the previous highs. On a day chart, there has been a slight decline in the last few sessions. This decline suggests that we may now retest the level of 34,441 and assess whether it will hold or not.
In essence, the current situation is one where the Indian market continues to closely follow the trajectory of the US markets, despite the favorable conditions in India. Both markets are due for elections this year and are situated near their all-time highs. While India has already surpassed its previous all-time high, the US market is approaching its previous peak. Consequently, both markets exhibit strength at the moment. However, it remains crucial to monitor how the markets react to these critical points.
Once we observe a convincing breakout, there is likely to be a strong upward movement in both the Indian and US markets. This breakout promises considerable potential. However, in the subsequent sessions and potentially weeks, we can anticipate a period of uncertainty. The situation near the 4800 level on the S&P 500 will be pivotal and demand close attention.
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