The Sensex recording a fresh life-time high of 40,392 last week has infused cheer and optimism among market participants. There are many pointing towards green shoots in automobile sales, good rains, festival sales and the recent corporate tax rate cut as reasons for the bullish sentiment in the Indian market.
It would, however, be better for investors to remain circumspect at current levels. The Sensex and the Nifty 50 are in a sideways move since September 2018, largely due to the continued demand for large-caps from institutional investors.
While the indices can move a little higher from these levels, the risk of their declining to the lower end of the long-term range, in the coming quarters, remains open.
Macro numbers are still far from comforting. The September quarter earnings of listed companies, which have announced results so far, show a decline in revenue as well as operating profit. It is apparent that the domestic conditions are not conducive for listed stocks yet.
Slowing global growth and the threat of acceleration in the trade war add further pressure.
With valuation of the Sensex and the Nifty still near the upper end of the long-term average band, it is quite likely that the indices could remain in a trading band for a while.
There is, however, an opportunity in smaller stocks that have borne the brunt of the sell-off so far. The BSE Mid-cap index is still down 19 per cent from its 2018 peak, while the Small-cap index is down 32 per cent. Investors can hunt for buying opportunities from this pile.
The Nifty moved sharply higher last week, closing near the 11,900 mark.
Short term trend
The short-term trend in the index has been clearly up since the low formed on October 7, 2019.
The third part of this move, which is currently in motion, has