Sensex & Nifty hit record highs but rally is vulnerable; what should investors do now?

Most experts feel that the rally is here to stay, and is likely to get extended to broader markets as well.

Indian market staged a smart rally on Wednesday after a couple of days on consolidations which led to a breakout in Nifty50 as it breached its previous record high of 11,760 on the upside to hit a new life high of 11761.

The S&P BSE Sensex rallied more than 200 points to hit a fresh record high of 39,266.85. More than 30 stocks on the BSE hit a fresh 52-week high which includes names like Bajaj Finserv, Bajaj Finance, Asian Paints, Pidilite Industries, SBI, Indian Hotels, Siemens, Varun Beverages, and Atul Ltd among others.

Financials led the gains on D-Street with Nifty Banking hitting yet another milestone. The index hit a record high of 30,648 led by gains in Bank of Baroda, IndusInd Bank, Yes Bank, Kotak Bank, and PNB.

The next big question in front of investors is that – will the rally continue? Well, most experts feel that the rally is here to stay, and is likely to get extended to broader markets as well.

A huge gush of foreign money into Indian markets made the backbone of the current bull market. Foreign investors have poured in more than Rs 45,000 crore in Indian markets so far in 2019. They bought Rs 32,000 crore worth of Indian equities on March, highest so far in 2019.

The flow of money into the Indian market is largely on account of global central bankers policies as nothing fundamental has changed for Indian markets. It is more hope-based rally is susceptible to collapse if it doesn’t broaden out.

At a time when both Sensex and Nifty are at record highs, the only handful of names have hit fresh 52-weeks highs. At the time of writing the report, only 20 stocks in NSE hit a 52-week high while 30 stocks on the BSE recorded their fresh 52-week highs. Something which does not bode well for the bull market, suggest experts.

If we look at Small & midcap sectors both are down over 10 percent from their respective record highs which suggest that the rally is not broad-based and liquidity is chasing few stocks.

“The distinct feature of the current rally is that it is extremely narrow led only by a few select index heavyweights mega-caps. The S&P BSE Smallcap index is down nearly 25 percent from its peak and anything down by over 20 percent is defined as a bear market. The S&P Midcap index is also down by about 15 percent from its peak,” Ajay Bodke, CEO-PMS, Prabhudas Lilladher told Moneyconytrol.

“Unless the rally broadens out and the small & midcaps show meaningful recovery till that time the rally remains vulnerable to a possible rise in risk aversion and reversal of FII flows,” he explained.

Here’s what other analysts recommend about benchmark indices hitting record highs:

Ramesh Damani, member, BSE to CNBC-TV18

The bull market is still intact, but it is time to be a bit cautious ahead of elections. We like Rail PSU stocks which are now looking attractive at the current level.

I would be cautious in the short-term, but long-term fundamentals are still intact. After the recent rally, we are not sure if market momentum will be as strong closer to elections.

Atul Suri, CEO-PMS at Marathon Trends to CNBC-Tv18

The market rally has not been broad-based, and the broader market has room to catch up because they have underperformed benchmark indices.

The market participants are waiting for the rally to spread beyond Nifty & Sensex. In terms of leaders, financials will continue to lead the market rally.

Apart from financials, we are seeing good traction in select capital goods and pharma stocks. Indian rally is largely on the back of flows moving towards emerging markets.

Vaibhav Sanghavi – Co-CEO, Avendus Capital Public Markets Alternate Strategies LLP

For FY20, my expectation is that the Nifty returns would follow corporate earnings growth rather than P/E re-rating.

In the coming year, we do expect that the earnings would grow by about 15 – 17 percent. Thus, a similar kind of return can be expected, provided tail risks from global or local factors do not hit the market.

Disclaimer:-The views and investment tips expressed by investment experts are their own. Ripples Advisory advises users to check with certified experts before taking any investment decisions.

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