Fomo buying and key portfolio allocation push Nifty 50 to a new high

The excitement is palpable as BSE-listed companies surge, adding 2 trillion in market capitalization today, propelling the total to a record 429 trillion.

“Most ministers retaining their portfolios signals policy continuity,” remarked Manish Sonthalia, CIO, Emkay Investment Managers. This suggests that pending tasks from the second term will be addressed in the third term, with the countdown to the first 100 days and the upcoming budget already underway, he said.

“On top of that, what’s fuelling this rally to new heights is the fear of missing out (Fomo) buying,” believes Sonthalia. The rapid rebound from the lows Indian indices hit on election day caught many by surprise. Now, investors are apprehensive about missing out on the upcoming rally, driving this buying spree and propelling indices to fresh peaks, he explained.

While noting that the retention of key portfolios by current ministers has added to the expectations of policy continuity, Nirav Karkera, head of research at Fisdom, highlighted that there may be a case for intermittent declines as the structural nature of the current rally resonates with the widely held buy-on-dips call on Indian equities.

On Wednesday, Nifty 50 settled 0.3% higher at 23,322.95 and Sensex closed at 76,606.57 points, up 0.2%. What helped the indices close higher were gains in shares of HDFC Bank, Reliance Industries, Larsen & Toubro, Power Grid and Bharti Airtel. Though, both headline indices had risen about 1% intraday with Nifty 50 hitting a record high at 23,441.95 points.

Nifty 50 has been unable to decisively close above the 23,400 level since the last three days. Significant call writing was witnessed at 23,400 and 23,500 strikes in the benchmark index. So, according to Ashwin Ramani, Derivatives & Technical analyst, Samco Securities, “Significant call writing at 23,400 strike indicates that bears are not ready to lose their control and tightening their grip, which is why we may see intermittent dips. Tomorrow (Thursday) being a weekly expiry day, trading activity at this strike will decide the future course of Nifty’s direction.”

Meanwhile, Nifty Midcap 100 and Nifty Smallcap 250 also hit all-time highs at 54,308.8 and 16,582.5. The former settled 1% and 0.9% higher at 54,226.10 and 16,567.70 points, respectively.

Deepak Jasani, head of retail research at HDFC Securities, believes that the bullish sentiment after the election results has spread to both the categories—large-cap and the broader market. He said, “…once the local traders have made money in the large-caps and in the F&O segment and the fund inflows slow down, the action typically shifts to the mid- and small-caps”.

Select stock-based opportunities will be available in the small and midcap space, and some pre-emptive buying could also happen in them ahead of the policy announcements and the Union Budget, Jasani added.

Meanwhile, volatility has also lingered as the indices closed off their peaks. India VIX index, also known as the fear gauge, ended nearly 3% lower on Wednesday.

“The macro risks appear to be emanating in the form of spillover effects of recessionary trends in several developed economies along with domestic concerns around the inflation trajectory, policy response and of course, the upcoming budget,” Karkera pointed out.

Another element driving the market to unprecedented highs is the surge in foreign institutional investor (FII) activity. FIIs that were waiting for the election result to bet on India, are now entering the market. That is evident from the recent FII buying figures.

“The FPI (Foreign Portfolio Investors) long short ratio jumped further to 37% on 11 June from 34% on 10 June as the FPIs continued to build significant long positions and cover short positions in index futures,” said Ramani of Samco Securities. As FPIs have closed their short positions and started increasing their long exposure, it appears they have shifted from a bearish stance, observed before the election outcome, to a bullish one, he explained.

Coming to valuations, an investment strategist at a mutual fund pointed out that, “Nifty P/E remains in line with its 5-year average on 1-year forward basis”. He said Nifty 1-year forward P/E is about 21.19 times as compared to 5-year average P/E at around 21.31 times. Even so, he sees opportunities emerging across various sectors, with even consumer-focused stocks showing signs of improvement. In terms of valuation, private sector banks, pharmaceuticals, healthcare, automotive, and selected consumer sectors offer the most attractive risk-reward ratio, he said.

“At these levels, any downgrade in earnings could lead to corrections in the markets,” he added.

With all factors considered, key triggers and events being closely monitored include policy announcements within the first 100 days, the forthcoming Union Budget, global and domestic developments regarding rate cuts, the progress of the monsoon in India, and signs of revival in the rural areas. Additionally, while anticipation surrounds Q1FY25 corporate results, some believe these may be overshadowed by budgetary announcements.

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Published: 12 Jun 2024, 09:18 PM IST

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