Nifty@10K: Long-term bullish, short-term cautious

By Dhruv Desai

Mumbai, July 25 (IANS) The NSE Nifty 50 hitting the key milestone of 10,000 points has happened, although briefly.

The rally has largely been driven by liquidity. Domestic macros played an important part in transferring global liquidity to our market. Stable and growth-oriented government policies and implementation of the Goods and Services Tax, which is the biggest reform since Independence, played a critical role in putting India on global map.

India was on everybody's wish list, but with stable political and economic environment, foreign investors took shine to us and we have received record inflows both in equity as well as in debt (both in government and corporate).

Another factor that pushed our market to 10,000 points was short covering as restriction was laid on FPIs (Foreign Portfolio Investors) on issuance of fresh P-notes which forced them into buying. This led to short covering on indices. Further, the inflows in our market remained intact because of accommodative policy by the Bank of Japan and the European Central Bank (ECB).

According to the NSE, the institutional category has pumped in over Rs 160,000 crore into the domestic markets year-to-date, thanks to expectations of accelerated pace of reforms. FPIs had invested Rs 27,000 crore during the first seven months last year.

For the medium term and the long term, we are bullish. But for the short term, we are expressing caution in the market on account of high valuation, both technical and fundamental. Nifty still has some legs, going up by around 3 to 4 per cent. But beyond that, we feel market may not sustain the momentum and would correct.

We have not seen any meaningful correction in the past six months and if any corrections happen, it will reset the market and that will seek further gains from there.

Bank Nifty will take leadership at least for the short term. With a hope of rate cut from the Reserve Bank of India, banking shares will gain. With record low inflation and normal monsoon, the chances of rate cut are getting stronger.

In 2014 too, we saw leadership coming from banks which helped the market scale new highs. This time too, we are seeing similar pattern. Sectors that may do well in coming days are those based on discretionary consumption themes.

With implementation of the GST, there will be shift from unorganised sector to organised sector and former will get benefitted. The numbers from auto sector looked promising and with the Seventh Pay Commission recommendations, we expect auto and auto ancillary companies to do well.

(Dhruv Desai is a Director & COO at Tradebull. He can be reached at dhruv@tradebulls.in)