CLSA’s Laurence Balanco sees Nifty at 37,000 plus by end of this decade

Laurence Balanco, CLSA, says the upside target for Nifty from the structural moves that we have seen historically for the Nifty is over 37,000 as an ultimate upside target towards the end of this decade. Balanco says there is still further upside and that is why they want to look at opportunities to increase exposure. But they are not seeing the evidence to jump back in. Just over 37,000 is the longer term target for the Nifty in this phase of the bull market off the COVID lows.

Which is that one asset class or trade that could be a multi-year short? For example, if someone said they would go short in China, three years ago, that turned out to be the trade of the century. What is that one trade you would say that I would remain short?
Laurence Balanco: That is a question without notice. It is off the top of my head on a structural basis. In the near term, the most vulnerable market that we have highlighted has been the Euro Stoxx 600. This market peaked in April, May. This year, there was a dip into the August lows. We had a rally back to those April, May highs where we have stalled out and rolled over. So, it does look like a space that relatively underperforms. And then we have also got this potential double top pattern.

What are the structural markets? What is your long-term target for this market on the Nifty or on the Sensex, which really could coincide with your peak targets?
Laurence Balanco: Yes, we have published and we have looked at the longer term trends for the Nifty that we have had and this is the third bull market phase off the COVID lows that tend to last over a decade and the upside target we get from those structural moves that we have seen historically for the Nifty is that we get over 37,000 as an ultimate upside target towards the end of this decade. We still think there is further upside and that is why we want to be looking at opportunities to increase exposure again. But we are not seeing the evidence to jump back in. So, yes, just over 37,000 is where we see that longer term target for the Nifty in this phase of the bull market off the COVID lows.


IT seems like much tactical near-term sort of trade. What do you think is going to drive the strength going forward? Do banks look like the strongest slot to you whenever the market chooses to recover?
Laurence Balanco: Banks for us are the key overweight in this and we call it the bull market from the COVID lows.

A tad off the COVID lows, it has been the state banks that led the recovery and a key driver to the upside. What we have seen in relative terms is a comeback in the private banking space. And one of the charts that I have looked at closely and watching closely is HDFC Bank, because a break through the 2790 area, from a largecap stock perspective would be a significant breakout and that would generate some leadership in the next leg up towards that 37,000 area.

So, that is one chart set up that we like looking forward to once we have stabilised and based out, looking for where new leadership can come from. Still banks are a key part. But a subtlety within that is unlike the move of the 2020 lows, which was led by the state banks, we think the private banks make a comeback and drive the next leg higher.

What about consumption because there has been a slowdown. Autos are seeing a bleak trend. Some of the realty names have fallen quite hard and even the FMCG sector. Would some of these consumption sectors here in India continue to consolidate, if not correct?
Laurence Balanco: The one that is most vulnerable and you can look at a number of charts globally on the auto space and the Indian autos that actually held up relatively well compared to some of the Japanese auto names that we have been looking at from the start of the year. So, in that space, there does seem to be more vulnerability through this corrective phase that we have seen currently.

Again, I would not be bottom fishing quite yet in that space. The staple side, too, we have not really seen any evidence. That is surprising because when markets do selloffs, we typically see that the FMCG side gives relative outperformance. We have not seen that from India. So, there is downside risk there. If you look at the real estate index, there is quite a significant rollover and breakdown. Those three spaces from real estates, consumer staples, or the FMCG side to the autos still looks like it is part of this corrective phase and has not seen a turnaround yet.

What is the path of least resistance for crude? Is it higher? Is it lower? Do you think crude is headed much lower?
Laurence Balanco: It is stuck in this trading range. We are looking at it remaining in a neutral range above $70. We are not getting any directional trade. We have not got any fresh information, seen a breakout from that. So, for us, it is very much a range-bound structure. If anything, because it has been holding in the bottom end of that range, there is risk to a break below $70. But that is not a high-convection setup, and that is where the risk sits because we have been sitting in the lower half of the trading range for the better part of this year.

What do you make of this entire price action in the so called Magnificent 7, Nvidia, Apple, Alphabet, Microsoft? They have a crazy market cap. They looked bloated two years ago, five years ago, ten years ago. Why is that law of large numbers not impacting some of these Magnificent 7 stocks which now account for nearly 10% to 12% market cap of the world now?
Laurence Balanco: I will give you the answer from what we have seen on the chart. There are two things I would highlight to you. We peaked in July, we had the selloff into August, we have had a rebound in that Magnificent 7 index. So, just focusing on those seven stocks, that rebound has now stalled at the July high.

We have basically got double top resistance, we have got slowing upside. And then if you plot that Magnificent 7 index versus the S&P 500, that relative ratio peaked in July, the rebound that you had of the August lows has made a lower relative high. So, in fact, we have underperformed since July. If you look at the Magnificent 7 as a basket versus the S&P, we have not made new relative highs and that absolute chart has a double top. So, I think the Magnificent 7 is in a digestion phase.

If you look at the semiconductor side, just take a step to the cyclical part and the semiconductor space of technology that also peaked in July. The rebound that you have had of the August lows has not even got back to those July highs and you form these lower highs relative to the July highs. So, you are in this consolidation pattern in the semiconductor space as well as the Magnificent 7.

Now, within the Magnificent 7, one or two stocks like Meta or Tesla most recently have broken out. But if you look at the likes of Amazon, Apple, or Microsoft, you are still in this trading range. So, it is more selective. The broader index is in a digestion phase, which can last into the first half of 2025 with the semiconductor index.