Eight-year cycle: Sensex may hit 21,000 jackpot in 2011

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If you are a retail investor looking to make money on Dalal Street, you may have a little over 12 months left to get your portfolio right. The Indian stock market is in the midst of a consolidation phase that will set the tone for the next bull run which, according to chartists, is set to begin in the first half of 2011.

The technical analysis, based on a classical eight-year time cycle that the market has followed since 1984, projects the Bombay Stock Exchange (BSE) benchmark Sensex to break the 21,000 barrier by early 2011 and embark on a bigger bull run. “The current rally is an upward leg of the larger consolidation pattern,” said Anup Bagchi of ICICI Securities. “In 2010, the Sensex will fluctuate in the range of 12,500 and 21,000. The next major peak is expected in 2016.”

The analysis shows that the equity market tends to be range bound after doubling from the bottom. For instance, after the 13-month bear phase witnessed during 1992-93, the Sensex jumped more than 100% from 1,980 to 4,643 before going into a consolidation phase for almost four years. The larger bull run, which started in 1998, then took the Sensex beyond the 6,000-mark in Feb 2000 before markets were spooked by the bursting of the tech bubble.

The next cycle from 2000 to 2008 also witnessed a similar trend. After a three-year bear run between 2000 and 2003, the Sensex went up by more than 100% from the 2,900 mark to 6,250, which was followed by a correction of almost 33%. This next bull phase started in 2005.

Going by this theory, analysts expect the markets to see some correction over 12 months. “It could correct up to 11,000 at some time. There are, in fact, likely to be large swings in both directions,” says Rohit Srivastva, fund manager at Sharekhan.

A SundayET article dated January 4 had, citing technical analysis, predicted the market stabilising from April after bottoming out in February/March following the completion of a 13-14 month downtrend.

Ashu Madan, president of equity broking at Religare Securities, believes the Indian stock market is already under a different kind of bull run. “We may be in a consolidation phase but the euphoria has begun to build. For retail investors, this period leading to the bull run will be a litmus test. They should not let their learnings of last market crash act as a baggage now,” he says.

Low readings on India Volatility Index (VIX) too show that the overall perception among investors about market risk has reduced. The VIX is currently trading in the mid 20s, which is in sharp contrast to the same period last year when it was trading in the 50s.

Over a longer period of time, analysts anticipate the markets to touch 25,000 levels by 2012. “Going by the cycle, the Sensex should touch 32,000 levels by mid 2014,” says Sandeep Wagle, chief technical analyst at Angel Broking.
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