Sensex at 47K & Nifty at 13700: Will there be Santa Claus rally in Christmas week?

The S&P BSE Sensex and Nifty50 closed in the green for the seventh consecutive week in a row tracking strong global cues, as well as green shoots in the economy which are supporting the risk-on sentiment.

On the global front investors’ eye COVID-19 relief stimulus package talks which could be as big as $900 billion, and on the domestic front, stable GST collection, fall in inflation numbers, weakness in the Dollar index, and vaccine news are some of the factors supporting bulls along with robust flows from FIIs which have crossed more than Rs 36000 crore in the cash segment of India equity markets.

The S&P BSE Sensex hit a record high of 47,026 while the Nifty50 hit a record high of 13,773 in the week gone by. As we step into a holiday-shortened week experts fear some profit booking.

Indian market will remain shut on Friday, 25 December on account of the Christmas holiday.

Technically, the Nifty50 has surpassed critical resistance near 13600 to hit a high above 13700-13750 levels in the week gone by and is also set to claim higher highs and head towards 14000 but the journey might not be that smooth, say experts.

The rally should be used to get out of fundamentally weak stocks while wait for a dip to put fresh capital, they say.

“The market has overstretched in the short term and definitely no aggressive fresh buying should be done especially when Nifty trades at a PE upwards of 35x. Though intermediate and the long term view on the market is still bullish, one should wait for a decent retracement for significant buying,” Umesh Mehta, heads of research at SAMCO Group told Moneycontrol.

“A buy on dips strategy should be the way ahead for investors while traders can ride the momentum with caution and appropriate stop loss. Markets can remain deviated from the mean for some period of time but eventually, it reverts to their mean,” he said.

Gaurav Garg, Head Research, CapitalVia Global Research Limited advises investors to book partial profits of their portfolio as Nifty50 has rallied up to 13,800.

He is optimistic over the growth rate of India Inc. after a surprise Q2 GDP growth rate along with Q3 financial results which might surprise the street on the positive side.

After rallying for eight consecutive week, investors should take a relook at their portfolio, and exit out of weaker names.

The weekly price action formed a sizable bull candle with a small lower shadow carrying higher high-low over seventh consecutive week, indicating a continuance of positive bias.

“We believe that investors should review their portfolio and use the rally to exit out of the weaker names in the portfolio especially from companies suffering from corporate governance issues,” Dharmesh Shah – Head – Technical, ICICI direct told Moneycontrol.

“While some volatility cannot be ruled out in the first quarter of 2021 we remain positive on the long-term growth prospects of the markets and would recommend holding on to quality stocks with good business franchises with a long-term perspective,” he said.

Shah is of the view that the Dollar index has breached the key support threshold of 90 for the first time since April 2018, auguring well for emerging markets. “We believe, continued weakness in dollar index will remain the key monitorable for extension of the ongoing rally as that would provide the impetus for the Nifty to resolve higher and head towards 14200 in coming weeks,” he said.