The swiftness of the recent market rally has taken most analysts by surprise but instead of trying to predict whether the bull run will continue or there is a crash ahead, they now agree it has some more room to go before a clear direction could emerge.
Following a 32 percent rise in the Nifty in 2014, shares have tacked on another 7.5 percent rise so far this year.
“Going back to December, a number of analysts had said their yearend target for 2015 is 9,000-9,500,” pointed out analyst Ambarish Baliga. “We’re almost there [9,000].”
Baliga added that the Indian market has had help from various events, the RBI rate cut, ECB stimulus and even the President Obama visit. “Going forward, it will have the Budget effect. So it will continue for a while but for how long?”
Answering the question, Mayuresh Joshi of Angel Broking conceded that while even he has been surprised by the speed of the recent up move, he said the market could move further up if the government could demonstrate its intention to definitively push through reforms such as GST or kickstart the investment cycle. “If that happens, earnings will see a u-turn two quarters down the line.”
A kick-start to earnings is much needed to compress the much-tracked price-to-earnings ratio for the market, which has been ruling at a little over 20 times on a trailing basis – higher than the historical average. Earnings, whatever have been released, this quarter too have been lukewarm.
“We are structurally positive on the market but a stock-specific approach is advised rather than taking an index-level bet,” Joshi said.
“The deep correction that everyone has been expecting might not happen so soon. They rarely take place when everyone expects them to,” technical analyst Kunal Saroagi said. “Technically, there’s no real trade except to go long. This market can scale higher highs.”
The analysts also quipped about the run in banks the market has witnessed – the financial sector now accounts for about the 35 percent of the benchmark indexes.
“But private banks have further room to run,” Baliga said. “I am cautious on PSU banks. We have seen in the midcap PSU banks’ earnings. The NPA issue is likely to persist for two-three quarters more.”
Joshi agreed: “There are very few sectors to play the economic recovery cycle. Sectors such as consumer and autos have become very expensive,” he said, adding that private banks will likely benefit from a recovery in GDP growth and credit cycle, and that investors should buy them on dips.