Nifty hits 20,000-mark for first time ever; domestic, foreign investors pour in money

Analysts also see promising medium to long-term opportunities in India.

NSE’s benchmark index Nifty 50 hit the significant 20,000-mark on September 11, rising nearly 1 percent from the previous close. India's benchmark share market indices have shrugged off global worries and subdued overseas cues, and outperformed overseas peers.

Nifty 50 and BSE Sensex have risen over 2 percent each in the last week, led by strong domestic macroeconomic data, a breather in August, and resilient buying from domestic institutional investors.

Recently, several high-frequency indicators such as Goods and Services Tax collections, private capital expenditure, credit growth, and Purchasing Managers' Index for August showed that the Indian economy remained firm. The economy has resisted high inflation, elevated interest rates, rising crude prices, patchy monsoon, and global slowdown, among others.

Since the start of April, the Nifty has surged by 17 percent, fuelled by inflows of over $18.9 billion. DII's bought Rs 33,397 crore during this period. Meanwhile, the mid- and small-cap indices have seen an even more substantial rally, each rising by about 41 percent and 47 percent respectively.

However, amid a notable rally and rising valuations in the local equities, analysts have begun cautioning investors in response to global market weaknesses driven by a strong dollar and increasing US bond yields. Last week's lower-than-expected unemployment claims have raised concerns about potential interest rate hikes. Additionally, weaker Chinese trade balance data has further bolstered the US dollar.

Kotak recently advised investors that it has ceased recommending a midcap portfolio due to the scarcity of stocks beyond the BFSI sector showing potential for a 12-month fair value increase. Kotak attributes the sharp stock price surges to irrational exuberance among investors in the mid-cap and small-cap markets.

In the current market environment, valuations pose challenges, emphasizing the importance of careful stock selection and risk management. Analysts are concentrating on sectors linked to domestic demand for their growth and earnings potential.

Analysts also see promising medium to long-term opportunities in India, driven by investment cycles and policy reforms. They advise investors to adopt a long-term perspective for equity investments, aligning products with their investment objectives and risk tolerance. To navigate short-term uncertainties, investors can consider staggered investments, while more conservative investors may explore asset allocation strategies, analysts added.

"Overall, we are overweight on domestic sectors like Auto, Industrials, etc., but valuations have become rich, and we are heading into the election period; hence, we must carefully manage the domestic cyclical part of the portfolios. While small caps may see a tactical correction from a medium to long-term perspective, we see interesting opportunities in the space given the country’s healthy economic growth, vibrant corporate sector and strong domestic liquidity," said Bandhan Mutual Fund in its latest equity outlook note.

Investors are now focusing on ECB monetary policy, and US and India inflation due later this week.