Where is the Nifty heading? There are enough market experts who have a view on this, I decided to add another angle to this by analysing Nifty from a Bottom-Up perspective.  To do that, I took a weighted aggregate of Nifty’s components using the Mojo Analysis on each stock. The results are as follows:

• 78% of Nifty components are good Quality. Others are Average. So we would rate the overall Quality as Good.
• 46% of the Nifty components have  Valuation which is fair. The rest is  almost evenly distributed on either side, we can safely say that the overall Valuation as Fair.
• 42% components have a Flat Financial Trend and 40% have a  positive Financial Trend, the overall trend is slightly Positive.
• If we look at the moving averages, Nifty still holds above the 200- Day Moving Average and the 100-Day Moving Average is above the 200- Day Moving Average thus the longer term trend is still not negative as per our study.  The short term technicals have however turned negative some time ago as the Nifty is below its 20-Day and 50-Day Moving Averages.

What does this mean?

The Short Term is difficult to predict…as always

Financial Trend and Technicals play a role in the short term direction of stocks, hence it should apply to Nifty as an aggregate as well. Based on the above data, the short term corroborates the view in the earlier piece:  Optimism Interrupted.. Part 2. In the short term, any rise in US interest rates, trade wars or political uncertainty in India could cause short term pain. But these events are difficult to predict.

The Longer Term seems to be on track

Nifty has given a return of around 14% compounded over the last 33 years.

Given that the valuation is close to Fair  and the overall Quality is Good, over the next 3-5 years, Nifty should be able to match the past returns.

Returns can be higher if, for example the  Financial Trend becomes positive and remains positive over the 3-5 year period. If, however, the opposite happens, the returns may be lower. Given that the impact of GST and infrastructure spending will materialise over the next few years the chances of Financial Trend falling substantially seems less likely. 

A 14% return would means that potentially Nifty can be at 20000 in 5 years.

Is there a way to beat the Nifty Returns over the longer term ?

Based on the past data a portfolio of at least Good Quality company with a Positive or better Financial Trend and Valuation which is at least fair beats the Benchmark.

Here is a list of 14 stocks which meet that criteria. 

As always, would love to hear your feedback.

Please Note: Our analysis on individual stocks is data driven and changes as data changes. You can monitor our the stocks on a regular basis on our site www.marketsmojo.com.

Also, please do your own Research before you Buy or Sell a stock we do not recommend  a buy or a sell.