Sensex reclaims 60,000 mark. What should your market strategy be now?

It has been mostly a one-way street for equity markets since July 2022. The S&P BSE Sensex and the Nifty50 have rallied around 13 per cent each since then. The gains in the mid-and small-caps have been sharper with both these indices on the BSE surging around 14 per cent each during this period.

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The rally comes on the back of optimism that the worst of inflation could be over, and that the global central banks, including the most tracked US Federal Reserve (US Fed) may not resort to steep hikes in interest rates as expected earlier. Commodity prices, especially crude oil (Brent), also cooled off 16 per cent to around $94 a barrel now, which boosted equity market sentiment.

With the S&P BSE Sensex reclaiming the 60,000 mark in trade this week, is it a good strategy to partially book profits or stay put? What about the mid-and small-caps segments?

The US Fed rate hike, according to G Chokkalingam, founder and chief investment officer, is not a major issue as the markets started discounting the upward rate cycle almost fully. The fear of the US Fed reducing the balance sheet, he believes, is also moderating as it has not cut down the balance sheet significantly in June and July despite announcing a $47.5 billion cut per month from June 2022.

“Oil prices may not rise substantially due to growth contraction. FIIs have also turned buyers of Indian equities now. Domestic macroeconomic factors, positive FII flows and solid flow of new investors into the markets together outweighs the stress coming from external economic parameters. Unless attacks on Taiwan flare up, the current market rally is likely to continue in the short-term. It is worth banking on equities without any cash calls within the equity asset allocation. Prefer tilt towards large small & mid-caps, and Nifty stocks till we get absolute confidence on Taiwanese issues,” Chokkalingam said.

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On their part, technical analysts see the Nifty is hit 18,100-18,200 levels before it makes any major attempt to reverse. However, this journey, they caution, can see intermittent corrections given the sharp run up since July.

“Downside markers may be pushed higher towards 17835/45 for intraday trades. That said, there are not enough signs of topping out," said Anand James, chief market strategist at Geojit Financial Services.

Meanwhile, foreign institutional investors (FIIs) have pumped in nearly Rs 41,705 crore in Indian equities since July 2022 till August 17, the latest available NSDL data suggests. On the other hand, mutual funds have put in around Rs 5228 crore between July 2022 and August 03, the latest available Sebi data showed.

Among sectors, metals, power and capital goods indexes have been the top gainers since July – rallying 19 per cent to 23 per cent during this period, ACE Equity data showed. Realty and banking sectors, too, gained around 16 per cent each during this period.

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The Nifty, according to analysts' estimates, is now trading at 21x FY23 earnings per share (EPS), comfortably above its long period average (LPA). The upside from here on, said analysts at Motilal Oswal Securities, will be a function of stability in global and local macros, and continued earnings delivery versus expectations. 

“In our model portfolio, we maintain our overweight stance on BFSI, IT, Consumer, Telecom and Auto with underweight / neutral stance on Energy, Metals and Healthcare sectors,” wrote Gautam Duggad, head of research at Motilal Oswal Institutional Equities in a coauthored note with Deven Mistry.