PremiumThe relative strength index (RSI), which many investors track to identify whether a security is overbought or oversold, has hit an 11-month high of 83.69 on the Nifty. Many investors consider the market to be heavily overbought when the RSI hits 80-plus levels.
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MUMBAI : The National Stock Exchange’s Nifty index continued its climb despite a major momentum indicator flashing a sell signal.
The relative strength index (RSI), which many investors track to identify whether a security is overbought or oversold, has hit an 11-month high of 83.69 on the Nifty. Many investors consider the market to be heavily overbought when the RSI hits 80-plus levels.
The RSI can remain elevated for a prolonged period if buying by foreign portfolio investors (FPI) continues, as seen since the beginning of August, which implies that the market could move higher from present levels or consolidate.
The Nifty RSI hit a high of 83.69 on 17 August. A level above 70 signals an overbought market and one below 30 an oversold one.
The last time RSI was this elevated was on 16 September 2021, when it touched 85.6. At that time, the Nifty traded at 17,519. From there, the index rose to a record high of 18,604 on 19 October. After that, the index fell to 15,183 on 17 June. The RSI on that date was 28.36, implying a highly oversold market.
From the June low, the Nifty has rallied 18% through 17,944 on 17 August. The RSI had risen to 83.69, boosted by FIIs buying $4.6 billion of Indian shares in August, the highest in any month since December 2020, when they bought shares worth $8.4 billion. FPIs purchased shares worth $600 million in July, turning net buyers for the first time in nine months. At the start of July, RSI was at 44.72.
Nithin Kamath, chief of Zerodha, said, “My view is that the US markets are in a ferocious bear market rally and might peak anytime. If the US goes down, we follow along. However, we’ll most likely continue to outperform because of factors such as no leverage, higher growth, and a stable government."
Rohit Srivastava, the founder of IndiaCharts, expects Nifty could hit one more peak before moving sideways.
“The RSI is at elevated levels, indicating that the market may take a pause at these levels," said Pritesh Mehta, senior vice-president, Yes Securities. “However, strong FPI inflows could provide a floor to market. This would mean RSI could remain high for a prolonged period wherein Nifty trades at high levels."
Domestic institutional investors absorbed FPI sales of about $34 billion from October through June this year, enabling the market to outperform global peers and other emerging markets. With FPIs returning, analysts expect the Nifty outperformance to continue.