Sensex, Nifty rise almost 2% in a day, is there more steam left in the market?

The BSE midcap index closed at 23,374, up 0.19 percent, while the smallcap index settled with a gain of 0.23 percent at 27,134.

The overall market capitalisation of BSE-listed firms jumped to Rs 240 lakh crore from Rs 237.7 lakh crore in the previous session, making investors richer by Rs 2.3 lakh crore in a single day.

Also read: Nifty50 hits 16000! 29 stocks gave multibagger returns in NSE 500 since February

Reasons behind the rally

A strong rebound in macroeconomic indicators infused positive sentiment in the market. Besides, largely in-line June quarter earnings also underpinned sentiment.

Positive macroeconomic prints soothed investors' concern of faltering growth and they turned towards equities across sectors.

"Positive economic data indicates strong rebound from the impact of the second wave of COVID-19. All major domestic data like PMI index, GST collection, corporate earnings, export data, etc favour a strong recovery. This has added euphoria to the domestic market which reached new highs," said Vinod Nair, Head of Research at Geojit Financial Services.

Also read: Sensex, Nifty, mid and smallcaps hit record highs, what is fuelling the rally?

The Q1FY22 earnings, so far, have not shown any major impact of the second COVID-19 wave.

"The Q1FY22 earnings season has been in-line, benefitting from the lower base of Q1FY21, as lockdowns in Q1FY22 were localised and less stringent against that of Q1FY21. Nifty profits for the 31 companies that have posted their results have grown 70 percent year-on-year (YoY) against the expected 64 percent YoY growth," brokerage firm Motilal Oswal Financial Services said.

Is there more steam left?

The long-term outlook remains positive, however, there may be volatility in the short term due to global cues and reports around the COVID-19 pandemic.

A lot will depend on the pace of vaccination, while macro factors such as inflation and the quarterly GDP numbers will continue to influence the mood of the market, experts said.

Steam is left in the market but one should avoid guessing the top of the market, they said.

"We tend to avoid timing the market or worrying about short-term price fluctuations. In the long run, Indian markets hitting some sort of cap is out of the question," said Atanuu Agarrwal, Co-founder, Upside AI.

"India’s GDP will continue to grow and listed businesses will be able to capture that upside and convert it into higher profitability. We are nowhere near the lifecycle of a country like Japan, where long-term growth of broad indices is not a certainty," he said.

The level of 16,000 is a nice round number for all of us to discuss and take stock of but it doesn't change anything about India's (and Nifty's) secular growth story, Agarrwal said.

Ajit Mishra, VP - Research, Religare Broking is of the view that the positive sentiment in the market may not fade away soon.

"The market has resumed trend after two months of the rangebound move so it is unlikely to fade away anytime soon. However, the participation of the banking index would be the critical factor as that would decide the pace of rising from hereon. Nifty has the potential to test 16,300+ zone now. Traders should align their positions accordingly," said Mishra.

Likhita Chepa at CapitalVia Global Research said the Nifty managed to sustain its immediate psychological resistance level of 16,000 on the back of expectation that the Reserve Bank of India will continue with its accommodative monetary policy given the continuing uncertainty on the growth momentum and the threat of another wave of the pandemic.

"We do not see any immediate financial risk which could impact the Indian equity markets to a greater extent in the near term and therefore expect the Indian markets to be constructive," said Chepa.

Technical indicators show that the immediate resistance is placed at 16,150, while on the downside, support is placed around 15,800 levels.

“On the technical front, the index has finally given a breakout of 16,000 and given closing above the same, which suggests a bullish movement in the upcoming day. The index has given breakout above the upper band of Bollinger, which signifies strength for the next session,” Sumeet Bagadia, Executive Director, Choice Broking, said.

Momentum indicator MACD has also shown positive crossover on the daily timeframe, which suggests an upside rally in the counter, he said.

“On a daily chart, the index has formed a bullish Marabozu candle, which adds strength to the counter,” Bagadia said.

Deepak Jasani, Head, Retail Research, HDFC Securities, said the momentum and breadth of the market are in favour as the near-term outperformance against Asian peers continues.

"Hope that India will be a beneficiary of the recent troubles faced by China is keeping sentiments upbeat. While valuations seem high, there is no point in anticipating a top, but rather wait for signs of medium-term change in trend. In the meanwhile keep reviewing the portfolio and restore the equity allocation to that originally planned," said Jasani.

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