What a rally the market had in last one month! No one had predicted that pre-election rally would lift Sensex more than 3,000 points and Nifty more than 900 points in a single month.
The biggest reason behind this sharp up move is the gush of liquidity from foreign institutional investors. FIIs net bought nearly Rs 40,000 crore worth of shares in February and March.
“The broad-based rally witnessed in the markets was backed by solid FII buying over the past few days. The expectations of a stable government after elections ensuring political stability and continuance of economic reforms is keeping the markets in a good stead,” Mayuresh Joshi, Portfolio Manager at Angel Broking, told Moneycontrol.
He said couple that up with easing of concerns related to the US-China trade war, Brexit seeing a logical conclusion and crude staying in a range is sentimentally adding on the global geo political and geo economic conditions being stable.
Nifty50 took 19 trading sessions to climb from 10,600 level to psychological 11,500 mark and 69 sessions to reclaim 11,500 from 10,500 which was hit in December 2018.
“The current rally in Nifty is after remaining in a 500 points range of 11,100-10,500 for nearly four months. So it’s a kind of breakout and the breakout looks very strong. There is leadership in terms of banking sector performance. Also, the market breadth has improved sharply suggesting that this breakout is on a solid foundation,” Shailendra Kumar, Chief Investment Officer at Narnolia Financial Advisors said.
In 1,000-point Nifty rally seen in last 69 sessions, buying was seen in banking & financials, realty, energy, infra and IT stocks while auto and metals were underperformers. Yes Bank, HPCL, Bharti Infratel, Axis Bank, BPCL, UPL, IOC, Reliance Industries, Bajaj Finance and Bajaj Finserv were top 10 stocks which rallied 20-38 percent in last 69 sessions.
“Market rally has been very good driven by optimism on Modi 2.0 and liquidity flow from ETF, FIIs and FPI but rally has been confined to selected stocks,” AK Prabhakar, Head -Research at IDBI Capital said.
The broader markets also participated in the run, thanks to last one-month FII flow, which helped the Nifty Midcap index gain 5.7 percent and Smallcap index 9.6 percent.
The share price data for last 69 trading sessions suggested that the FII flow despite muted DII was so strong that more than 65 percent stocks in Nifty 500 closed higher. Top 20 stocks among the index rallied 35-61 percent and top 10 surged 41-61 percent.
After the current rally, most experts feel the market is in overbought zone and could consolidate for a while before moving on either direction. If FII flow continues, then new all-time high looks possible, but stick with quality stocks, according to them.
“Investors from now on should use all dips to accumulate good quality stocks that are going to report strong earnings in the future,” Shailendra Kumar, Chief Investment Officer at Narnolia Financial Advisors advised.
Mayuresh Joshi said albeit, with the sharp rally witnessed over the past few days, any of these event risks (general elections, US-China trade, crude oil price, earnings etc) playing to the contrary might keep the markets in check.
In such events, having a stock specific approach, sticking to quality names and systemically investing in the markets would be the key for long term return generation, he added.
AK Prabhakar advised using this euphoria to reduce unrelated or overvalued stocks.