Market at Record High, Can It Sustain Gains?

Nifty hit another record high of 15,606.35 in intraday trade before closing about a percent higher at 15,582.80 on March 31, extended gains into the seventh consecutive session.

Deepak Jasani, HDFC Securities, said the next trillion dollar rise will need a lot more large IPOs to be listed and the momentum in the large and midcaps to continue.

Jasani said large market-cap sectors, including financials, IT, oil and gas, logistics, FMCG, materials and pharma, will have to do well for the next milestone to be achieved. In addition, the new internet-enabled businesses (existing and fresh listings) will also have to do well.

• What has powered the market？

A combination of factors has pushed the market to an all-time high despite the apparent negatives due to COVID-19.

It is rallying on hopes that in the months to come, a significant portion of the population will have been vaccinated and the risk of COVID-19 will be minimal.

Besides, assurance from major central banks of the world that the market will remain adequately liquidated and rates will remain low to support growth is also keeping the market high.

Declining COVID cases and broadly in-line Q4 numbers have also underpinned the sentiment.

“Soft money policy followed by global central banks has resulted in funds flowing into emerging markets, including India,” Jasani said.

“Disruption in the businesses have led to more business shifting to organised (and most of them are listed) corporates. Companies have learned to survive and prosper in tough times having undergone some or other headwinds since 2016. The lack of other alternative investment avenues has also resulted in higher allocation to equities. Work from home since March 2020 has also seen increased trading interest from retail and HNI population,” he said.

Manish Jain, Fund Manager, Ambit Asset Management, said the key reasons why indices have not corrected despite the second wave is that financial and human impact needs to be looked at separately.

“Unlike the first wave, the state governments have been smart about the lockdown and in that respect logistics and production have not completely broken down. Hence, the overall economic impact on the economy and growth is going to be limited,” said Jain.

“Moreover, with a V-shaped recovery still in the offing and prospects of a double-digit growth still looking bright for FY22, we do believe that rally in quality good and clean stocks has just started,” Jain said.

• Unignorable risks

Markets are due for a correction but nobody knows when that will it happen or whether it will be a small or a large fall.

“The fact that we have not seen a deep correction over the last few months could mean that the Nifty is headed higher despite the known negatives in terms of economic slowdown, delay in corporate earnings revival due to COVID-19 waves, etc.,” Jasani said.

Indian markets face the global risks of monetary tightening and consequent unwinding of carry trade, geopolitical risks, commodity price rise affecting BoP and fiscal deficit, recurrence of COVID-19 over the next few quarters hindering the return to normalcy.

Locally, the risks include stubbornly high inflation, interest rates rising to combat inflation and/or protect the currency, partial failure of monsoon and its impact on rural spending, the fiscal situation getting more precarious and credit rating of India being considered for a downgrade, etc, he said.

However, Jain said due to a limited impact on the overall economy and growth, the rally in quality stocks is here to stay.

“The overall shift will happen from medium and small enterprises to market leaders and hence even more of a reason to invest in quality names and market leaders. We do believe that financials, consumer discretionary names and chemicals are some of the sectors that should do well in the short to medium term,” said Jain.

Gaurav Garg, Head of Research at CapitalVia Global Research, said the markets may not sustain these higher levels just on fundamentals but a lot will depend on sentiments and global as well as domestic cues.

“The Q1FY22 will play an important factor that will determine the course of markets in the short to medium term. Growing inflation is another major concern that will determine the earnings in the coming days. Although the second wave may not inflict economic damage like that of last year, inflation may impact the purchasing power of people and therefore businesses,” Garg said.

The rally may not sustain if COVID-19 does not come under control soon and if there is a third wave. Pick quality stocks and avoid getting carried away, experts said.

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