Indian stock market: Is it time to book profits amid easing India-Pak tensions?

Indian stock market: Indian benchmark indices, Sensex and Nifty50, moved higher on Wednesday, buoyed by strong performances in financial and IT stocks, following lower-than-expected inflation data from both the US and India for April.

Around 10:20 am, the BSE Sensex surged 518 points (0.64%) to 81,666, while the Nifty50 rose 184 points (0.75%) to 24,762.

Wednesday's rebound follows a sharp selloff in the previous session, which was driven by profit booking after a record-breaking rally on Monday. Nifty fell as much as 400 points and closed near the session's low on Tuesday.

“The benchmark Nifty saw a pullback in yesterday’s trading session after a strong rally in the session before that. Opening with a gap down of 60 points, it witnessed selling pressure throughout the day, closing with a loss of 346 points. On the technical front, Nifty experienced a steep pullback following a strong rally. It has formed a bearish candlestick pattern on the daily chart, indicating the potential for continued bearish momentum in the near term,” said brokerage firm Way2Wealth in a report.

Is it time to book profits amid India-Pak tensions?

Analysts believe that going ahead, market tone is likely to remain bullish, with some anticipating the ongoing bullish trend to drive Nifty 50 to 25,000 levels.

“We remain constructive on Indian equities and see the current run sustaining taking NIFTY to around that 24.8-25.0, and it would be the levels to book out of gains on NIFTY in the short term; however, long term 26K looks much achievable. The run-up in the market so far is driven by the liquidity and boost to the interest rate cut expectations, but overall earnings have only come off. We are expecting the downgrades to be over by the end of this quarter,” said Jaykrishna Gandhi, Head - Business Development, Institutional Equities, Emkay Global Financial Services.

According to Sameet Chavan, Head Research, Technical and Derivative - Angel One, the market's tone is bullish despite volatility amid ongoing India-Pakistan tensions. 

“This undercurrent kept the market's tone bullish. While choppiness may persist, we maintain a positive bias on the benchmark and stick to our recent view of adopting a ‘buy on dips’ strategy,” Chavan said.

Amongst the sectors, Gandhi said, financials remain the favoured bet. “SMID private banks are seeing interest in playing with easy liquidity and the MFI turnaround. We also feel that the low probability of a US recession makes technology a good play, as valuations are reasonable here. Cement was another favoured sector, as price increases are seen across regions, as per our channel checks. We see a few green shoots in Consumption/Growth supported by tractor sales, Non-Oil Non-Gold imports, and the RBI Consumer Confidence Index,” he added.

Meanwhile, Devarsh Vakil, Head of Prime Research at HDFC Securities, expects the mid-cap and small-cap indices to continue outperforming the benchmark. "We expect this trend to continue as we approach the end of the earnings season, which has been primarily in line with expectations," Vakil added.

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