The Indian market has witnessed healthy gains in the calendar year 2021 so far with equity benchmark Sensex rising 10 percent and Nifty surging 13 percent.
Mid and small-caps have outperformed their large-cap peers as the BSE Midcap index has gained 24 percent and the smallcap index has moved up 38 percent in the year so far.
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The market rally was orchestrated by strong retail participation, better-than-expected earnings and the positive outlook shared by the management of companies.
Data from Ace Equity shows 24 stocks from BSE 500 index have more than doubled in the calendar year so far while three stocks - Adani Total Gas, Adani Enterprises and Adani Transmission - have jumped more than200 percent each.
Strong gains in these stocks have given way for concerns if it is time to book profit in them as their valuations look stretched.
Experts advise investors to be selective in their investments and pick only fundamentally strong stocks.
"Investors should stay invested in quality stocks that have growth prospects, strong financials, low debt and a healthy balance sheet and not worry about the intermediate corrective moves," said Ajit Mishra, VP -Research, Religare Broking.
"At least half the stocks had genuine reasons to move like improving fundamentals and P/E rerating which has brought them at this level. Price going up further, depends on the momentum built in the stocks and no one knows precisely till when it will last," said Bhushan Mahajan, Managing Director, Arthbodh Shares and investments.
"These have to be held with a strict stop loss which is based on momentum indicators and other technical parameters, like RSI, etc. Expecting the stock to be a multibagger going forward (after having appreciated by two or three times already in the last six months), is most likely to be a pipe dream," he said.
The road ahead
At present, the market is near its all-time high and looks on course to scale fresh peaks in days to come as sentiment is upbeat in anticipation of faster economic growth due to vaccination exercise picking pace and sustained fall in COVID-19 cases.
"Though there was a bit of slowdown as the second wave hit the economy, investor sentiment continued to remain upbeat with receding COVID-19 cases and vaccination drive picking up up the pace," said Mishra.
The move has been almost vertical in the broader indices since March 2020 so we can’t rule out the possibility of a correction in the near term.
"The major concern is interest in the stocks which are not fundamentally sound but still seeing participation in the prevailing surge," said Mishra.
Mishra, however, maintains positive bias on the broader markets but strongly recommends staying selective and focusing on companies with strong fundamentals having decent valuations for investment.
Most market analysts believe that the market will continue to see occasional profit-booking and such dips should be used to buy fundamentally strong stocks.
Dharmesh Shah, Head – Technical, ICICI Direct in a note said the Nifty is on track to test 16,000, but a move from 16,000-16,400, the next big target, would not be linear and there would be bouts of profit taking.
This will give long-term investors the opportunity to enter the market on dips, both in Nifty50 and the broader market.
Shah said the broader markets were expected to undergo healthy consolidation after a 22 percent rally, amid a robust price structure. Thus, temporary breathers should be used as incremental buying opportunities.
Amnish Aggarwal, Head – Research, Institutional Equities at Prabhudas Lilladher believes the second half of 2021 will be more of a stock pickers market.
"We remain cautiously optimistic on markets, although we don’t rule out intermittent corrections due to expensive valuations. We advise focusing on fundamentally strong companies and avoid getting into speculative stocks at this point in time," said Aggarwal.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.