Kotak Insights | Date 28/07/2023
Imagine a world where the streets are paved with gold, but there's no sign of bloodshed.
That's the current enigma we're witnessing in the stock markets - no blood on Dalal Street or Wall Street, yet the markets are scaling new records.
As an investor, you might be wondering, "Is this the right time to jump into the market, or is it all just hot air?"
The recent market rally, led by foreign institutional investors or FIIs, has taken the benchmark Nifty 50 index to uncharted territory. After a nail-biting 200-day wait, Nifty finally hovered around the 20,000 mark in June 2023. Momentum investors are ecstatic, and for good reason!
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What's driving this rally, you ask?
It's not just FIIs pumping money into the Indian markets. There's a perfect storm of factors at play, creating a favourable backdrop for the Nifty's up move.
Take the IPO markets for instance. There are over 40 companies waiting for regulatory approval to launch their IPOs. In fact, this week alone saw 5 IPOs hitting the markets for subscription.
So, let’s talk about the factors that are favouring the Indian markets.
Firstly, let's look at the U.S. economy.
Economists who once predicted a recession are now singing a different tune, suggesting that the economy may avoid a downturn altogether. This positive sentiment has a ripple effect on global markets, including India.
Moreover, the U.S. Federal Reserve has been raising interest rates aggressively (from 0 to around 5%!). It doesn’t look to stop any time soon and raised rates by another 25 basis points (bps) this week, which brings the interest rate to a 22-year high.
This might seem alarming, but it has helped control inflation and stabilize the markets. Global central banks followed suit. India witnessed some relief in inflation. And consumers got more purchasing power.
Next up and adding to the market’s bullish sentiment are corporate earnings which stand at record highs.
The financial year 2023 results of top companies have exceeded expectations, and management commentaries have sparked a wave of optimism.
But even with all these tailwinds, some skeptics remain. They wonder if the Nifty's failure to reach a new high is a sign of trouble. However, those who have seen the Nifty's resilience before know that a fresh high could just be the beginning.
Let's fast forward to July to gain more insights into this.
The Nifty scaled a new all-time high of 19,991 last week, and the Nasdaq is also trading near its peak levels.
The charts reveal a beautiful sight - everything is soaring up and to the right!
So, the big question remains - should you take the leap now or wait and watch from the sidelines?
Remember, the market is a tempting playground, and missing out on the action can be disheartening. But it's essential to tread carefully.
The first-quarter results (Q1FY24) of top companies are giving investors a reality check, suggesting that the rally still has plenty of legs. Many sectoral leaders are yet to declare their earnings, promising more positive surprises.
Huge capex, China plus one, decline in raw material prices – the list goes on and on when you consider everything working in favour.
Additionally, the initial public offering or the IPO market is currently buzzing with excitement. This optimism is contagious, and if retail investors and FIIs keep pouring in money, Nifty 20,000 might not be a distant dream.
However, there are always contradictory narratives.
Some market participants caution that Indian markets are looking expensive and that foreign funds might find better deals in other emerging markets.
Many wonder whether they should follow a wait-and-watch approach as markets trade above their long-term valuation multiples.
So as traders and investors, it's crucial to keep the expectations in check.
What's the right approach?
Be patient and disciplined. Embrace what's working well at the moment, but don't let the fear of missing out drive your decisions. Have an effective trading strategy that can weather both bull runs and bear markets and has enough risk management measures.
The journey ahead might be long and bumpy, but the Nifty's tenacity and the favorable market conditions suggest that it might just break more records.
Cautiously optimistic is the word of the game. So, buckle up, and let's see where the Nifty takes us!
For a more thorough Nifty outlook, tune into our Trade Talk Podcast where Shrikant Chouhan discusses the trading strategy for Nifty, Bank Nifty, and key sectors every morning.
Until then - Happy Investing!
Sources: Kotak Securities, NSE, Economic Times
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