Markets in consolidation phase; prudent to book profit now: Analysts

The markets may be entering a consolidation phase and are expected to trade sideways for now after a good run in the last few weeks, suggest analysts.

In this backdrop, they suggest investors can book profits at the current levels and enter the market again on a decline from a medium-to-long term perspective.

Thus far in fiscal 2023-24 (FY24), the S&P BSE Sensex has moved up around 5 per cent to nearly 62,000 levels.

The Nifty50 index, on the other hand, has gained 5.5 per cent to 18,300 levels, data shows.

“The Nifty has been continuing its upward momentum from April, surpassing the significant resistance level of 18,200.

"At the current levels, the key hurdle for the index is at 18440, which represents a 78.6 per cent retracement of the previous decline from 18,888 to 16,828.

"It is possible that there is some profit taking around this level.

"However, if the Nifty manages to break above it, there could be an up move towards the 18,630-18,690 range,” said Santosh Meena, head of research at Swastika Investmart.

Meena suggests that the immediate support level for the Nifty50 index is at the 9-day moving average (DMA) of 18200, followed by the 20-DMA at 18,000; and a cluster of 100 and 200-DMA at 17,800.

A large part of the rally, according to U R Bhat, co-founder and director at Alphaniti Fintech, has been led by buying by foreign institutional investors (FIIs), which can now pause for a breather in the absence of major triggers in the Indian markets.

“Most of the positives have played out. FIIs may like to pause and assess how the events – both globally and in India – play out over the next few months.

"As a result, the market rally can pause for now. Any negative news can even take the indices back to the levels when the rally started.

"It will be a good strategy to book profit now,” Bhat said.

That said, the gain in the mid, small-caps has been sharper with both these indices on the BSE rallying around 8.9 per cent and 9.2 per cent, respectively thus far in FY24.

Among sectors, realty, auto, capital goods, banks (Bankex), oil & gas, and healthcare were among the key performers that gained 6.5 per cent – 17 per cent thus far in FY24, ACE Equity data shows.

The information technology (IT) index is the sole loser that has slipped around 2 per cent in FY24.

While analysts remain optimistic on the road ahead for the markets from a medium-to-long term perspective, and especially the mid-and small-cap stocks, they suggest investors allocate to the large-cap peers as well on a dip for the long term.

“Though we see a possibility of a major bull run in the small and mid-caps in the short-term, we suggest investors maintain a minimum 30 per cent exposure to Nifty and Sensex stocks from a medium-to-long term perspective,” said G Chokkalingam, founder and head of research at Equinomics Research.

Election calendar

A busy election calendar in 2023 – 24, analysts at Jefferies suggest, can see the central and state governments dole out sops / resort to populist measures to woo the electorate over the next few months, and ahead of the general elections in 2024.

“This should help the rural demand recovery, which is in its nascent stage at this time.

"We remain overweight on staples with the next 6-12 month view as it not only benefits from the further strengthening of rural recovery, but also margin expansion due to weaker commodity prices.

"Our long-term overweight call on industrial / banks stays though the potentially adverse election results (13th May) may cause a dip in these stock prices,” wrote Mahesh Nandurkar, managing director at Jefferies in a recent coauthored note with Abhinav Sinha and Nishant Poddar.

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