There's a similarity in the Nifty's current rally with its last peak in January that was followed by a rout. Yet, analysts don't expect a replay.
The NSE Nifty 50 Index hit a lifetime high of 11,620.7 on Aug. 23. None of its constituents are oversold on the relative strength index for 18 days—the longest stretch since January. About 14 percent are overbought.
In January, none of the 50 stocks were oversold for 24 straight days while 26 percent were overbought.
The oversold level, when the Relative Strength Index falls below 30, suggests selling may have gone too far. The overbought level of 70 indicates the opposite.
But Nifty's RSI is still 15 percent below the year's high of 84.1. That's because only a handful of stocks are going up, said Gaurav Bissa, assistant vice president, technical and derivatives, at LKP Securities. A smaller percentage of overbought stocks leaves more upside room for the Nifty, he said.
Chandan Taparia, associate vice president at Motilal Oswal Securities, said January was different because most sectoral indices rallied well in 2017 before investors started profit-booking in early 2018 after the return of long-term capital gain tax on equities.
Nifty could continue trading near the overbought zone for longer till it breaches a key support, he said, adding that level as of now is seen at 11,333. Lower volatility with higher put-call ratio and liquidity from domestic institutions also support the index, he said.
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