Market rally would remain broad-based going ahead: Experts
Published On: Wednesday, September 15, 2021 | By: Team KnowMyStock
Markets have been trading sideways ahead of the meetings of the two major global central banks – the US Federal Reserve and the Reserve Bank of India (RBI) – over the next couple of weeks. Market experts expect natural profit-taking to happen with rising markets, but do not see any meaningful correction unless there is a more aggressive taper stance by the US Fed. They are cautiously optimistic on markets for 2021, on surplus global liquidity, and benign interest rates. The US Federal Reserve (US Fed), prior to the pandemic, had an outstanding balance sheet size of $4.2 trillion as of December 2019, which doubled in size to $8.3 trillion. Likewise, the European Central Bank (ECB), which had a pre-pandemic balance sheet size of 4.7 trillion euros also saw a similar proportional increase in size to 8.2 trillion euros. This liquidity is providing support to asset inflation in high-risk asset classes, including emerging equities like India.
The experts are seeing the market rally becoming more broad-based, with large-caps also gaining traction, which had been missing in action for some time. Nifty underperformance over Nifty Midcap Index over the last one year is around 25 per cent, while for the last 3 months is (around 2 per cent), thereby indicating large-cap participation in the recent rally. We expect this trend to continue, with sectors that had been left out till now, also participating in the rally. This will happen primarily because a large part of Covid uncertainty is behind us, and investors are becoming more confident with their expectations.
according to some analysts banking sector has underperformed over recent period, with 6 month return of around 2 per cent vs around 17 per cent for Nifty500 Index mainly due to higher than expected NPAs in the first quarter; they expect this sector to start contributing to market rallies ahead as they believe the NPA stress will come down.
The institutinal investors continue to remain fully invested with limited cash levels of around 5 per cent to take opportunistic investments. They have to remain watchful of broader market signals such as earnings growth momentum, valuations and liquidity parameters, and intend to be nimble in their approach to portfolio management. As the economy is reviving from the long period of lockdown, the market rally would remain broad-based going ahead. However, they would stay overweight in some of the sectors like information technology (IT) and metals. There can be structural shift in demand for IT services driven by large spending by corporates. Metals sector is likely to go through an opportunistic upcycle on China’s pollution control induced production curbs. Global liquidity also seems to be adding to this high risk asset inflation.
As far as Autostocks are concerned the analysts expect this situation to continue for six to nine months, post which better clarity is expected to emerge. Automobiles, especially the two-wheeler makers would also be facing competitive challenges from the electric vehicles (EVs).
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