While the 50-share index Nifty is less than 700 points away from the record high of 18,604, Sensex is around 2,000 points away from the peak of 62,245 touched on October 19 last year.
Analysts say while the liquidity, macro and micro fundamentals are supportive of a long-term rally, Nifty bulls could face speed breakers and the index may consolidate in between.
Indicating broad participation in the market rally, the average NSE cash turnover has now crossed above Rs 59,000 crore from the average of Rs 44,000 crore at the start of July.
“We will probably hit record high before Diwali but the short term is very difficult to predict. In the near term, we might see a small correction before going up again,” says market expert Abhishek Basumallick, who runs equity research firm Intelsense.
With the peak of earnings season being over now and the next US Fed meeting still a month away, analysts say these 3 key factors will determine whether Nifty will hit a new peak in the next few weeks:
1) While the domestic institutional investors (DIIs) have been taking a break, foreign institutional investors (FIIs) have bought stocks worth over Rs 18,500 crore so far in August. They have been net buyers on all days of August so far in the cash market.
“Consistent participation by FIIs is the backbone of the current rally in the domestic market. This reversal in the FII trend is owed to the resilience showcased by the Indian economy even as inflation continues to plague the western markets,” Vinod Nair, Head of Research at
, said.
2) As Russia’s invasion of Ukraine exacerbated supply concerns, crude oil rates had zoomed near the $140 a barrel mark earlier in the year. Amid recessionary concerns, oil rates cooled down to a six-month low of around $91 a barrel on Wednesday. Devang Mehta, Head of Equity Advisory, Centrum Wealth, said the dip in crude oil rates is a huge tailwind for the Indian economy and hence the market.
3) While we are not out of the woods yet, inflationary concerns are easing. VK Vijayakumar of Geojit Financial Services said the decline in inflation has increased the possibility of a soft landing for the US economy.
Dalal Street veteran and smallcase manager Basant Maheshwari, who thinks that the Nifty may hit 22,000 by 2024, explains that the market started falling from October 2021, much before the macro headwinds came to us and started rising much before these macro headwinds got sorted out. “The market moves a few months before the actual event and that is called a discounting mechanism. We will discount the best much before the best actually comes,” he said.
Valuations are, however, a concern as the sharp rally has put multiples near its long-term average of over 20x, which analysts say makes the risk reward less attractive amid uncertain global economic outlook and rising geopolitical tensions.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
