Fii: Sensex surges 7,000 points from June lows. Should you worry or enjoy the rally?

NEW DELHI: When FII selling was at its peak a few months earlier, India’s top investor Raamdeo Agrawal had predicted that although the foreigners had a wonderful exit, they will face a painful entry when they want to return. The prophecy might be coming true as the headline indices appear to be in an overbought zone with the FIIs starting to buy domestic stocks.

Helped partially by the loosening of purse strings by FIIs, the Sensex has rallied over 7,000 points from its 52-week low of sub-51,000 level in mid-June to 58,000 plus level. Nifty has also bounced around 2,000 points from its mid-summer low after rallying nearly 9 per cent in July.

Analysts say that the market now looks overbought with rising valuations and is more likely to consolidate in the near term as we are not out of the woods yet in terms of global geopolitical tensions and recessionary fears.

“With this rally, Nifty now trades at 20x FY23E, comfortably above the LPA (long-period average) and offers limited upside in the near term, in our view,” domestic brokerage Securities said.

However, the ongoing earnings season may help the bulls stay in charge. According to market estimates, out of the 33 Nifty companies that have declared their June quarter numbers so far, 17 of them have managed to beat the Street with only two disappointments.

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Besides, the 10-year US bond yield has also dropped sharply from the 11-year high of 3.498 per cent on June 14 to around 2.5 per cent now. The rupee is also gaining strength as the flight to safety to the dollar has subdued.

Making things sweeter for investors is the cooling off of commodity prices and contraction in global inflation.

Rishiraj Maheshwari, founder of RISCH Wealth and Family Office, said FIIs are now suffering from FOMO (fear of missing out the rally on Dalal Street) and domestic investors have no reason to back out. “Nifty is headed towards the 18,000-18,200 mark in the near term. Any correction, if at all, would be shallow and short-lived,” he said.

Smallcase manager Divam Sharma of Green Portfolio also expects the recovery to sustain for some more time. “The earning season in July has been one of the strongest yet for India Inc, with banks, auto, energy, and capital goods companies posting impressive numbers. Given the robustness of earnings and further cooling of commodity inflation, we think the market is reasonably priced right now,” he said.

Domestic brokerage ICICIdirect expects Nifty to head towards 17,500 in coming sessions but doesn’t rule out the possibility of a temporary breather at higher levels.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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