Indian equities seem to be on a record-setting spree of late, supported by improving macroeconomic indicators, healthy first-quarter earnings and dovish central banks.
The market has seen strong gains following the coronavirus outbreak, mostly driven by massive liquidity infusion as central banks cut rates to record low levels and bought government securities.
Key equity index the Sensex has gained 19 percent and the Nifty 21 percent in 2021 so far.
The Nifty is trading near the 17,000-mark and the Sensex is inching towards 57,000, which can get participants worried about the valuation as the economy is yet to show robust growth while the risk of a third Covid wave looms.
More steam left?
Most analysts believe the market may rise further and the Nifty may even hit 18,000 by December. There may be intermittent profit-booking but the medium to long-term prospects remain bullish, they say.
"We reiterate our Nifty target of 18,000 by December 2021. Our target for Sensex is 60,000 by December 2021. With accommodative financial conditions worldwide, we see the mega rally in risk assets to continue," said Amar Ambani, Senior President & Research Head, Yes Securities.
The strong influx of retail investors and abundant liquidity will keep the market aloft, said G Chokkalingam, Founder and MD of Equinomics Research & Advisory.
The number of registered investors with BSE is now more than 7.8 crore, nearly 46 percent higher year-on-year.
Analysts recognise strong influx of retail investors as a key factor behind the rally but are also concerned that their exuberance has stretched the valuation.
Nonetheless, the valuation does not appear to be a serious concern at this juncture, as Q1 earnings have been better-than-expected and the numbers may be healthy in the coming quarters as well.
India's economic growth is expected to pick pace with the revival of the capex cycle. The government's focus on infrastructure and divestment would improve the country's macroeconomic health in the coming months, analysts say.
Of late, UF Fed tapering has weighed on sentiment. Global brokerage firm CLSA said the discussion on the start of tapering by the Federal Reserve got markets worried about a repeat of the so-called 2013 taper tantrum.
The economies, however, were in a much better position at the moment than in 2013 and growth sector stocks should continue to do better, the global brokerage firm said.
"We find the US as well as the Indian economies on much stronger footing than in 2013, which should allow the reflation trade to return as the market digests the clarity on this taper in the coming weeks," CLSA said in a note on August 24.
"While India may give back some of its recent outperformance, growth sectors like banks and commodities should again outperform defensives," CLSA added.
Siddhartha Khemka, Head-Retail Research, Motilal Oswal Financial Services, said positive momentum would continue as the US Fed’s recent dovish statement had put investors' worry to rest.
"Sentiments turned optimistic as (Jerome) Powell stressed that even if they start reducing asset purchases this year, it would not tighten monetary policy quickly," he said of the Fed chairman’s speech at the annual Jackson Hole symposium.
From the long-term perspective, the overall trend of the market was positive led by the opening up of the economy, improving economic data points and pickup in vaccinations, Khemka said. “Hence, investors can take advantage of the current volatility and build their positions from the medium to long-term perspective," he said.
Technical indicators show the market may take a brief pause near 17,000, however, the possibility of a strong correction is unlikely.
"For the day traders, the support has shifted from 16,700 to 16,800- 16,850 levels. The market may take a temporary pause near 17,000-17,050 due to an extended rally while intraday charts suggest the market is in an overbought situation," said Shrikant Chouhan, Executive Vice President, Equity Technical Research, Kotak Securities.
As long as the Nifty holds 16,800, the uptrend could continue up to 17,000-17,050, the uptrend would, however, we vulnerable if the index slips below 16,800, he said.
It looks that the market has more legs, however, stock- selection remains the key to healthy gains. The occasional correction may be used for adding quality stocks to one's portfolio.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.