The Elliot-Wave expert speculates a fall in rupees to 85, with the downward trend in the economy; here’s everything you need to know about it.

The Elliot-Wave expert speculates a fall in rupees to 85, with the downward trend in the economy; here’s everything you need to know about it.

According to Rohit Srivastava, founder and market strategist at Indiacharts, the recent bounce, which began in mid-June and may take Nifty as high as 16,600–17,000, does not indicate that the bear market is over.

The founder and market strategist of IndiaCharts.com, Rohit Srivastava, stated that they are watching for the following topping commodity prices. 

The market has been moving downward for the past three months. The indices gradually increased in the second half of June. India charts founder, market strategist, and Elliott Wave specialist Rohit Srivastava explains how to understand this movement for the short and medium term in an interview with Moneycontrol. Technical analysts utilise Elliot Waves to analyse and forecast price trends in the financial markets.

In 1999, Srivastava, who has been monitoring markets for more than 30 years, learned about Elliot Wave analysis. He has employed this technical instrument and fundamental and balance sheet accounting for over 20 years. He left his position as the head of research at Sharekhan by BNP Paribas in 2019 and went into business for himself.

In 2000, Indiacharts debuted as a website. Readers received newsletters for free until 2013 and then for a fee. India charts became a fully-fledged business with research and educational offerings, including a mentorship programme, after Srivastava opted to pursue this full-time in 2019.

Explain what it means for you when the rupee drops to a low of 80 against the US dollar.

Against the US dollar, the Indian rupee hit a record low of 80.05. Here are some effects of the rupee depreciation on you, such as more expensive vacations and cell phones.

The rupee depreciated from its previous closing of 7 paise to quote at 80.05, down from its opening price of 80 against the US dollar.

According to NDTV, there is concern that the decline could be steeper since the odds of a free fall after a break in a crucial psychological rate increase.

In response to a question regarding the value of the local currency on Monday, Finance Minister Nirmala Sitharaman stated in the Lok Sabha that the Indian rupee had fallen by nearly 25% since December 31, 2014.

We investigate and decode the causes of the rupee’s decline and what it implies for the average person without becoming too technical.

What does it mean for you if the rupee drops to a low of 80 against the US dollar

The phrase “the rupee has plummeted to a low of 80 dollars” effectively indicates that Rs 80 are required to purchase one dollar.

This is significant when purchasing other goods and services in addition to American ones (say crude oil).

Causes of the declining rupee

India’s currency has lost value when measured against the US dollar, as most other currencies have. About the dollar, the rupee was worth 63.33 on December 30, 2014. On July 11, the price decreased once again to 79.41.

According to analysts at Emkay Wealth Management, “the Indian rupee has been severely influenced by the FIIs withdrawing funds out of the equities market, rising crude prices, the deteriorating trade balance, and dollar strengthening,” in an interview with India Today.

What does this entail for the ordinary person?

Importers are the ones who are most affected by the rupee’s decline as they must spend more money to purchase the same amount.

Oil and gas will be the industry that will be most negatively impacted because India imports more than 85% of the oil and 50% of the gas it uses.

This implies that the price of oil will rise, which will trickle down to various goods.

Purchasing cars will also grow more expensive as 10–20% of the total value of a car’s raw ingredients are imported.

Mobile phones and other electronic gadgets are also going to become more pricey.

Flying will cost more as well because fuel is getting more expensive.

A dilemma could arise for students who want to study abroad due to the rupee’s decline. This is due to the fees now being more expensive when compared to rupees and dollars.

Existing or prospective students may see an increase in costs.

The tourism industry may also suffer significantly from the decreasing rupee. Individuals who want to restart their international journey may spend far more than they would have a few days earlier.

One advantage of the weakening rupee is that Indian exports would become more affordable.

The information and technology sector would benefit the most because most of its customers pay in US dollars. As the value of the rupee declines, their incomes do as well.

According to many financial analysts, the optimum time to invest in Indian manufacturing and services is now. Additionally, the Indian tourism industry will benefit from this period.

What steps are taken?

Before this month, the Reserve Bank of India (RBI) further loosened regulations to increase foreign cash inflows. One such measure was to double the amount that may be borrowed via the External Commercial Borrowing (ECB) method.

More international investments would increase demand for the rupee as a medium of exchange for purchasing Indian assets denominated in foreign currencies.

According to Economic Times, A break below 14,200 can take Nifty to 13,600

For the benchmark Nifty to remain above 14,200, it will be essential. According to analysts, the index might drop to 13,600 if it breaks through the 14,200 level. On Friday, the Nifty closed at 14,341.35, down 64.8 points, or 0.45 per cent. Analysts urge caution as India continues to break records for daily new Covid cases. Technical analysts predict that the banking, IT, energy, automotive, and real estate sectors will do better if the index can bounce off 14,200.

1. According to NAGARAJ SHETTY, TECHNICAL RESEARCH ANALYST, HDFC SECURITIES

Where will Nifty go?

The Nifty’s short-term trend is still uncertain. The concern may arise if there is no discernible upside bounce or the highs after an upside bounce is not sustained. In the short term, such movement typically leads to a clear negative breakout of the support/range.

Any upward movement from here could bring stiff opposition to the 14,450–14,500 levels by next week. A sudden collapse below 14,200–14,150 might quickly lead to the following lows of 13,600.

How should investors behave?

Market investments may be postponed until it provides a clear direction. In specific equities, trading long positions can be continued with a strict stop loss. Sectors or stocks that just experienced a significant increase may experience profit booking from recent highs. In the upcoming weeks, there should be plenty of opportunities to go long in the sectors and equities if there is any false downside breakthrough of the 14,200 levels in the Nifty.

Which equities may investors purchase when they fall?

Sector rotation has started. It is anticipated that the banking, IT, energy, auto, and real estate sectors will outperform on an uptick in the broader index. It is best to acquire gradually.

2. According to DHARMESH SHAH, HEAD-TECHNICALS, ICICI SECURITIES

Where will Nifty go?

The Nifty has demonstrated strength by repeatedly holding the crucial support level of 14,200 over the past five weeks. It is now positioned at the lower band of the declining channel, including the decline from the life highs of 15,432. An important finding has been that Nifty and Bank Nifty have each corrected by no more than 9 per cent and 20 per cent since March 2020, respectively.

As the price-wise maturity of correction for both indices approaches, we anticipate Bank Nifty to drive Nifty higher in the upcoming week, toward 14,800.

How should investors behave?

The long-term structural uptrend is still present. The current correction should be seen as a bull market correction that presents a chance to stockpile high-quality large- and mid-cap equities in preparation for the next upswing.

We suggest taking advantage of any dips as an additional buying opportunity.

Which equities may investors purchase when they fall?

Given their favourable risk-reward configurations, we anticipate that the BFSI, IT, and consumer sectors will participate in any pullback. Pick TCS, HDFC, Titan, Tata Steel, Divis Laboratories, Astral Polytechnik, Birlasoft, and Tata Chemicals.

3. According to RAJESH PALVIYA, HEAD-TECHNICAL & DERIVATIVES, AXIS SEC

Which way is the Nifty going?

The index shows a “Doji” candlestick shape on the weekly chart, which denotes market participants who are unsure about the path to take. On the options front, there have been aggressive additions in the 14,600, 14,800, and 15,000 call strike prices (almost 10,000 lots in each strike), which shows that the current expiry’s potential appears to be limited. Nifty may challenge 13,950–14,000 if the 14,200 level is not observed.

How should investors behave?

According to the chart pattern, purchasing would occur if the Nifty crosses and maintains above 14,450, driving the index up to 14,550–14,600 levels. The week’s crucial support is between 13,800 and 14,000 points.

The 20-day, 50-day, and 100-day simple moving averages of the Nifty are being traded below; these moving averages are significant short-term moving averages and show a short- to medium-term bias on the downside. Buying on dips continues to be our go-to strategy as the Nifty is still in an uptrend over the medium term.

Which equities may investors purchase when they fall?

We anticipate success in the short term for the pharmaceutical, IT, FMCG, metal, insurance, and chemical industries. Focusing on equities that have the potential to do well shortly includes Cadila Health, Lupin, ICICI Prudential, HDFC Life, Deepak Nitrite, TCS, Asian Paints, and SAIL.

According to this Elliot-Wave expert, what level do you see the Nifty plunging to?

I’ll answer in two parts: first, the short-term view; second, the medium-term vision. We saw a rather significant drop that lasted from April through June. According to measurements, the market had become significantly oversold by the end of June, not merely in terms of price value but also in terms of attitude. At the end of June, FIIs (foreign institutional investors) had a short position in index futures that was the biggest since the epidemic, amounting to almost 145,000 contracts.

Usually, there is a short covering technical rise in between when traders reach that level of shortness. I don’t see a near fall because there is a potential for a sharp covering rally shortly. One month from now, the markets may unexpectedly rally and recoup. After that, we’ll keep an eye on whether the market rolls over once again and how much further the upside may go. 

The level will be at roughly 16,660 if you look at a 50 per cent retracement of the entire collapse, from the top of April at around 18,150 to the bottom at 15,150-15,180; if it is a 61 per cent retracement, it would be closer to 17,000; I’m therefore relatively open to the prospect that this surge extends upwards to 16,600 to 17,000 in the upcoming month. If we fail to surpass those levels, we will begin to anticipate the subsequent decline below the area where we recently hit bottom. I currently place the worst-case scenario close to the April 2021 bottom, or about 14,200.

Overall, if this bounce doesn’t allow us to cross 17,000, we could drop as low as 14,200.

Will there be the most significant decline since the pandemic?

Therefore, it is not necessarily sharp (pullback). Predicting whether we will experience the 50–60% retracement quickly or over a somewhat longer time can be challenging. This depends on the general environment; for example, if there is a lot of bad news, it may be slow and painful with numerous up-down movements or a quick selloff. Therefore, it need not be one way (action). Along the way, it may revolve several times. Counter-trend bounces typically last three to six weeks. We are currently in the fifth week after finishing the first four weeks. We, therefore, give it at least another week or two to complete.

When you perform a net wave on various charts that aren’t linked to one another, for instance, as you did in a recent webinar where you connected the commodities prices, gold, dollar, and equity markets, do they all exhibit the same patterns? Or is there already some established lead lag?

Yes, the Elliot wave specialist says. The bond market typically tops out or bottoms out first when we compare the bond, equity, and commodity markets then stocks, and finally commodities.

Looking back a year or so, you will notice that bond prices started to decline even before equities turned over as interest rates (in the bond market) started to climb. At first, while rates were rising, stocks didn’t react.

Commodities will eventually turn. This trend was seen in 2008 or when Y2K topped out in 2000. Beginning in late 2006, US interest rates began to rise. The US equity market peaked in October 2007, the Indian equity market peaked in January 2008, gold peaked in March, and oil peaked in June-July 2007. After that, for a while, everything seemed to be coming together.

Bonds are the first asset class to recover in a comeback because the bond market is where equities investors turn first for safety. The bond markets then experience a bottom first, hoping that conditions will be so poor that yields will decrease.

We are watching for the following commodity price peak in the current environment. As we can see, oil and energy-related stocks are beginning to roll over. Thus, equities and commodities are starting to fall together at this time. While we experience the previously described comeback in the short term, there may be a divergence where declining oil prices are interpreted as a suitable catalyst for equity. But ultimately, you will find that commodities and stocks drop together as demand falls due to rising rates and tightening liquidity. 

It is anticipated that bond markets will have achieved their bottom at that point because, at that time, bond markets will interpret a significant slowdown in growth as a hint that bond yields should start to decline. At that point, we will officially begin the final stage of this bear market. When the bond market bottoms out, the decline in equities and commodities will likely be in its later stages or at its sharpest point.

Commodities and stocks, according to experts in Elliot waves, are they in a retreat mode before the bond market delivers the lead signal?

Due to the geopolitical situation, we are currently witnessing an intriguing distinction between metal and oil. In contrast to 2008, there was no significant change in the price of copper in reaction to increased oil prices. In the end, copper prices also fell along with the price of oil. But this time, we’ve seen that most metals have already dropped sharply since April, with US copper down and aluminium down by 30% to 40%. Thus, a rebound is highly likely. The oil does not appear the same, though, as a result of how late it rolled over and peaked up.

As a result, oil does not seem to be oversold in compared to copper. It is possible that metal and oil could soon diverge, which would also present a bad opportunity. 

How long will the next wave remain after the current bounce-back (to 16,600 to 17,000 till perhaps the end of July), which puts us in the medium term?

Each fall and recovery typically lasts for three months down, one to two months up, and then another three months down. We anticipate that each leg of the decline process will take two to three months. Rarely does it go longer than three months? Therefore, assuming the recovery continues through the end of July, the fall would be August, September, and possibly October. The following two to three months can be bearish.

Do this time’s wave patterns resemble those from 2000 or 2008?

Is it possible to separate from a certain point?

Except during the last stages of a shift, we rarely ever observed a decoupling between the two markets. For instance, the current state of affairs is far more akin to the 1997 to 2000 period than 2008 from an economic standpoint or from how the dollar is acting about commodities prices or the state of emerging economies. Of course, that period (1997–2000) saw an emerging market crisis, a rise in the dollar, and the eventual burst of the tech bubble due to the rising dollar. Then came the bear market. Many Southeast Asian markets had already experienced a bear market by that time.

In India, the core sector (apart from the technology industry) underwent a period of consolidation from 1994 to 1998 and was only beginning to emerge in 2000. Even if it seems like we are in a better place now, we were in a far better position in 2000.

What factors, in your opinion, have prevented the rupee from falling significantly?

The Reserve Bank of India’s (RBI) intervention has prevented the rupee from falling (substantially). What other reason could there be except FII withdrawals, rising oil costs, and our current account deficit to not surpass the 77 mark, which was our peak during the pandemic? I frequently wondered when the RBI would end. I sensed they wouldn’t be intervening in the future — maybe a little bit, but far less than they were doing before they stepped in and began to hike interest rates in May. That is the first hint that they are being reserved.

Second, they recently published a note discussing the potential risk of a $90 billion outflow. Though it was more of an analytical statement, it made clear that the authorities were now keeping an eye on market dynamics and employing interest rate policy to help the currency find its bearings. Because it is reacting to the realities of the market, you see a rapid movement in the USD-INR.