On expected lines, the Nifty50 hit a fresh record high of 15,455.55 in morning trade on May 28 with banks, metals and energy counters the lead gainers. At 1:30 pm, it was trading at 15456, up 0.8 percent from a day ago.
The BSE Sensex is still about a 1,000 points below its all-time high level of 52,516.76 that it hit on February 16, 2021. Market analysts believe the 30-share pack may make a fresh peak in the coming week.
In its journey from the last peak to the new one, Nifty witnessed strong volatility due to the second wave of COVID-19, subsequent lockdowns imposed by several states and concerns over rising inflation.
However, the market started to build gains in May after the number of fresh COVID cases started to fall and hopes grew stronger that the states will begin to lift curbs on public movement. While the pace of vaccination has faltered, it is likely to improve as production picks up. Global cues also improved after the US Fed signalled it views the rise in consumer price inflation as transient and that rates will remain low for longer.
"Global cues have been positive as reopening of economies in western countries and encouraging economic data point towards quick global economic recovery. Further, pledge by the US Federal Reserve along with host of other Central Banks to keep monetary policy loose despite recent signs of an uptick in inflation has abated the concerns so far," Hemang Jani, Head Equity Strategy, Broking & Distribution, Motilal Oswal Financial Services.
"With fresh cases subsiding continuously at home, investors are upbeat about the unlocking of the economy in June which will help revive commercial activities. Healthy earnings season with strong growth momentum lent support to the market," Jani said.
Moreover, reports of a government stimulus have also bolstered the mood of the market. The government is planning a stimulus package and direct, immediate relief for sectors such as hospitality and Medium, Small and Micro Enterprises (MSME), which are India’s biggest employers and have been battered by COVID-19, Moneycontrol reported today.
Sectors that led the rally
Since February 16, the Nifty Metal index has given a return of 41 percent, followed by the pharma index which rose 10 percent.
Experts point out that metal stocks have done remarkably well in the last few months amid expectations of large infra spends by the US and China and talk about a commodity super cycle.
Disruption in mining activities across the globe and low capacity addition in the past few years have also supported metal stocks.
Gautam Duggad, Head of Research at Motilal Oswal Institutional Equities, told CNBC-TV18 that there is still room for more earnings upside in steel companies. He pointed out that commodity prices are still higher quarter-on-quarter and year-on-year after last week's fall.
"All large-cap steel companies have reduced leverage significantly. Deleveraging for metal companies could continue in FY22. We are slightly overweight on metals," Duggad said.
Pharma stocks have seen gains as the pandemic has boosted demand. Stocks from this sector may continue to see healthy domestic demand for the coming few months, experts believe.
Media, energy, IT, PSU Bank and FMCG are the other sectors that gained between 3 and 7 percent since February 16 this year.
On the flip side, Nifty Realty, private bank, finance, bank and auto indices failed to perform during the said period.
The market's rise seems to be primarily based on the belief that the economic activities will soon reopen and with vaccination picking pace in coming months, the concern of COVID-19 will fade away.
However, experts advise investors to trade cautiously after the recent rally. The indices have already more than doubled from their March 2020 lows and many stocks in the small & midcap space have given multi-bagger returns in the same period.
The market seems to have factored in the positives slightly early. The risks of inflation, geopolitical tensions and further waves of the pandemic still loom.
Commodity prices have been rising of late, raising worries that a higher inflation rate may put the central bank on a tight spot as retail inflation is used by the monetary policy committee (MPC) for policy formulation.
Inflation is always a risk in any part of an economic cycle. For an emerging economy like India, a jump in inflation globally may hit the foreign fund inflows.
Investors need to remain cautious and make stock-specific moves to keep the risk factor low, say experts.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.