Sensex at record high but consolidation may be short-lived

Mumbai: The benchmark Sensex hit an all-time high on Monday, kick-starting the new financial year on a strong note, but experts say that while some consolidation may be on cards it would probably be very short-lived.

The benchmark Sensex crossed the 39,000-mark in early trade on Monday, hitting an intra-day high of39,115.57. Some profit booking emerged, however, as the indice closed at 38,871.87, nearly 250 points below the intra-high mark.

Analysts said that the Sensex hit fresh highs a little quicker than expected. Normally peaks are reached post-elections. The valuations in the current rally may require some solid justification from fourth quarter earnings and the guidance for the next few quarters, which could be the key trigger from here on, they said.

Besides, FIIs have infused over Rs 50,000 crore into equity and debt in March, which has been interpreted by the market as a decisive signal of better times.

Amid this positive momentum, Sameet Chavan of Angel Broking suggests that investors should keep focusing on individual stocks that are showing strength and are likely to provide better trading opportunities.

Markets hit all-time highs in the early part of last year and again in 2015. In most of these cases, the new highs were triggered by a return of risk appetite among institutions and a gradual earnings upgrade in select sectors, analysts said.

One thing common to most rallies in the market towards new highs has been the predominance of FII inflows and a strengthening of the rupee, they said.

On the pre-poll expectations, Angel Broking Portfolio Manager Mayuresh Joshi said that the markets did touch a new high post the elections on many occasions.

"We saw the markets hitting a new high after the 1991 elections and also after the 1999 elections. Similarly, after the 2004 elections, the Nifty not only scaled a new high but also set the tone for a long-term bull market," Joshi said.

In 2009, the market hit a long-term bottom just a couple of months before the elections and then went on towards a rally. In 2014, there was a strong pre-poll rally, which continued well into 2015 before touching new highs, he added.

Deepak Jasani of HDFC Securities noted that a lot of markets globally are at multi-month highs owing to the end of monetary tightening and lack of alternative opportunities in asset classes despite growth worries, which could prove damaging to equities in the medium term.

"Markets could continue to rise, with some intermittent corrections till the election results are out and may later begin a correction," he said.

On the global front, a key trigger on Monday was China's healthy factory data, which was termed as a one-off recovery in the PMI data owing to the massive stimulus that the Chinese government has undertaken.

However, market participants would look to see if this momentum can be sustained, which looks unlikely without a full-fledged trade deal between the US and China.

Joshi also said that the return of liquidity could be a game changer for the markets.

The US Fed has hinted at no further rate hikes this year and other central banks are also planning to loosen liquidity. All these can be value accretive for global markets, he added.