Has Nifty Run Out Of Steam After Rallying Nearly 20% From June Lows?

On Friday, the Nifty 50 index touched an intraday high of 17,992, its highest level since April 5, after rallying 18.5 per cent before tumbling 198 points to settle at 17,758 after succumbing to the selling pressure on account of profit taking. 

Since its 52-week low of 15,183 in June this year, the index had been doing well. Low prices of crude oil and base metals, and strong June quarter earnings reported by Indian companies are some of the major reasons behind a strong surge in the markets. Cheap valuations, to which many stocks had fallen, in June also added to the rally in the markets. In July, foreign institutional investors (FIIs) turned buyers in Indian markets after consistently selling shares since October last year. FIIs bought shares worth Rs 4,989 crore in July and followed it up by buying stocks worth Rs 44,481 crore so far this month. 

This one-way up move has surprised many investors and most of them are feeling left out for not participating in the up move, say analysts. 

The bull run since the June lows has been so intense that all the stocks in Nifty 50 basket, barring one, have given positive returns. Bajaj Finserv tops the list with a 43 per cent gain. Bajaj Finance, Asian Paints, IndusInd Bank, Hindalco, Eicher Motors, UltraTech Cement, ICICI Bank, Titan, Larsen & Toubro and Hindustan Unilever have also jumped between 27-38 per cent. 

The sharp surge, however, has sparked fears of correction. Amid jitters, Sumeet Bagadia, executive director at Choice Broking, says that there can be a minor correction in the market but that should be used as a buying opportunity. 

"Dips should be used as a buying opportunity as Nifty can go up to 18,300-18,500 levels by September. The index has strong support around 17,500 and 17,200 levels and investors should hold on to their long positions," he says.  

After a sharp up move in cement stocks, he recommends buying cement stocks as the sector will see strong demand as construction activity will pick up after monsoon ends. He advises buying ACC, UltraTech Cement, Ambuja Cements and India Cement. 

On the sectoral front, all the sector gauges, barring the measure of information technology shares, have shown a strong performance since the lows of June. Nifty metal index with 27 per cent gain is the top sectoral gainer. Nifty PSU bank, realty, financial services, private bank, auto, consumer durables and FMCG indices have also jumped between 20-25 per cent. On the other hand, the Nifty IT index has dropped 32 per cent. 

Friday's fall in markets was more to do with the technical aspect of the markets than fundamental aspects, says Deven Choksey of KR Choksey Securities.

“Next Thursday is the monthly expiry of futures and option contracts. Generally, we have seen that the market behaves in this weird manner a couple of days ahead of monthly expiry because people want to offload their position or change their position. I do not think anything changed fundamentally as far as the view of the market is concerned,” says Choksey. 

Choksey expects the market to hit record highs by Diwali if inflation and crude oil prices remain low.