Equity barometer the Sensex reclaimed the psychologically significant level of 60,000 in morning trade on August 17.
Just a few months ago, the market was clouded by gloom and investors were worried over inflation, rate hikes and a looming recession. These concerns still persist even though there is some hope that inflation has peaked and the rate hikes will not be as aggressive as they were anticipated.
Sensex opened at 59,938.05 against the previous close of 59,842.21 and touched a high of 60,323.25 in intraday trade. The 30-share pack eventually closed 418 points, or 0.70% higher at 60,260.13. The benchmark index is now just 3% below its all-time high of 62,245.43 that it hit on October 19, 2021.
Is it a bear or bull run?
Foreign capital inflow, softening crude oil prices, signs of easing inflation and hopes of a less severe rate hike are keeping the market up. However, there is a debate whether it is the beginning of a new bull run r we are witnessing a bear market rally.
"Experts disagreed on whether the ongoing rally is a bear market rally or the beginning of yet another bull market. The majority who believed that this is a bear market rally has been decisively proved wrong by the ferocity of the rally which has taken the Nifty to a mere 4.3% away from the all-time high, said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Vijayakumar added that there is global support for this rally with S&P 500 and Nasdaq bouncing back by 18 and 24% from their June lows.
"Declining US inflation, confidence that the Fed need not have to aggressively raise rates and the increasing probability of a soft landing of the US economy are supporting this rally. In India, steadily declining inflation, strong growth momentum in the economy and FIIs turning into consistent buyers are driving the rally. Even though valuations are high it makes sense to remain invested and buy on dips," he said.
Rahul Shah, Co-Head of Research, Equitymaster thinks it is a case of history repeating itself.
"Whenever the Sensex has not entered a bear market, the reversal has been quite quick historically and the same has happened this time also. The icing on the cake is that, unlike last time, the valuations are much more reasonable this time around. Although the broader market is by no means cheap, it isn't prohibitively expensive either. Therefore, those looking for fundamentally strong stocks at attractive valuations could still find pockets of undervaluation," Shah said.
Can Sensex hit a new all-time high soon?
Since inflation is showing signs of easing, rate hikes are not likely to be hyper-aggressive, which will be a major comfort for the market. FPIs are buying in the Indian market which is another bright factor. Now, a lot will depend on the geopolitical developments.
G. Chokkalingam, Founder & Head of Research, Equinomics Research & Advisory Private said by the end of the year 2022, the Sensex would breach 70,000 if there is no war In Taiwan and US Fed doesn’t reduce its balance sheet aggressively.
"Growth slowing down across the world will bring down oil prices which in turn would help India to reduce inflation rate and trade deficits, thereby improving forex reserves. Consequently, inflows from FPIs would come in a big way," said Chokkalingam.
Analysts also point out that India's macroeconomic indicators are in better shape and the ongoing geopolitical issues have not changed things materially for the country.
"Investors have faith in the country and longer-term growth outlook, and fundamentals have not changed materially due to issues emerging from geopolitical events," said Sachin Trivedi, Head of Research (Equity) and Fund Manager, UTI AMC.
Trivedi pointed out that the probability of improving returns in the market increases in the long run. "I urge investors to allocate money towards equity as a long-term investment and not worry about the short term," he said.
Devang Mehta, Head- Equity Advisory, Centrum Wealth highlighted the day US inflation came above expectations at 9.1%, markets factored in an aggressive rate hike and moved forward. While inflation and interest rates can still come and haunt the economies and markets, a confluence of factors including low valuations, be it P/E, P/BV, m-cap to GDP, oversold markets, the fall in commodity prices, etc. helped markets to move northwards.
Moreover, crude from $130 to $93, is a huge tailwind for our own economy and hence the markets. The return of foreign institutional investors, credit growth in mid-teens for the banking sector, decent monsoon, commentary on impending capex and above all the first quarter earnings season, which did not disappoint the street, were catalysts for this up move, Mehta added.
He believes with the festive season in India for the next few months, revenge shopping, eating out and revenge travel, a lot of consumption-oriented sectors would find favour and with credit growth and capex coming back, BFSI would also be a beneficiary.
Independent market expert Kush Ghodasara, CMT said technically we have seen five weeks of the rally and we are near strong resistance of 60,500. "I believe we have a profit booking on cards before reaching new highs as indicators are weakening," said Ghodasara.
Disclaimer: The views and recommendations are those of individual analysts and not of MintGenie.
