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The Nifty’s 17% rally from its mid-June low might have taken even the most bullish on D Street by surprise, but it’s come on significantly lower cash market volumes, casting doubts on its sustainability. In the past, whenever Nifty tested 18,000 on lower cash market turnover, the index has corrected. This has raised similar fears this time.

The benchmark corrected from a record high of 18,604.45 on 19 October last year through 15,183.4 on 17 June 2022. Between this period, it tested the 18,000 level twice, rising to a high of 18,350.95 on 18 January before tumbling to 15,711.45 on March 7 in the wake of the Ukraine conflict. It rose again to 18,114.65 on 4 April, plumbing through 15,183 on 17 June thereafter.

On both occasions, cash market volumes were substantially lower than that in October. Average daily turnover (ADT)was 81,361 crore in October last year, NSE data showed. When the Nifty retested the 18,000-mark in January this year, the ADT for the month was lower at 64,178 crore. It was 68,013 crore in June.

Back then, the Nifty corrected after testing 18,000 on lower volumes. Most recently, it rallied stupendously from 15,183 on 17 June through 17,992 intraday 19 August, a mere eight points off the 18,000 mark, before closing lower at 17,758. So far this month, ADT has been 58,896 crore, lower than the previous occasions when the index re-tested the 18,000 level.

This has raised concerns among broking officials such as Pritesh Mehta, senior vice-president (research) at Yes Securities, on whether the market has reached a peak or is likely to reach one soon before correcting as it did on the past two occasions.

Dharmesh Vala of Nayan M Vala Securities believes the Nifty has peaked for now and could correct by 800-1,000 points.

“The latest leg of the rally has come amid much lighter market and I think the correction has most likely begun," Vala said.

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