Stock market recovery: Nifty, Sensex up almost 12% in one month; how current rally proved a majority of experts wrong

Stock Market outlook: The Indian market has recovered significantly in the past four weeks and is inching close to its all-time high. As on August 17, benchmarks Nifty50 and Sensex have gained almost 12%, driven by host of factors, including positive global cues, FIIs turning net buyers in August and drop in crude oil prices among others. 

Metal and banking stocks have played a crucial role in the current recovery. In the past one month, Nifty Metal surged by over 22% and BSE Private Bank gained around 15%.   

On Wednesday, the market traded on its 4-month high value with the Sensex reclaiming 60,000-mark, while the Nifty50 trading above 17,900 for the first time since April 6.  

Speaking on the current rally in the market, VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said the ferocity of this rally has proved wrong the majority of experts who believed that this is a bear market rally.  

"There is global support to this rally since Nasdaq and S&P 500 have rebounded by 24% and 18% from the June lows. Nifty too has rebounded 18% from the June lows. It appears that the market may remain resilient," the expert said. 

The decline in inflation has increased the possibility of a soft landing for the US economy, he underlined.  

In India, the decline in inflation, falling crude, strong growth momentum, good monsoon and above all FIIs turning consistent buyers have turned the sentiments in favour of the bulls, said the expert, adding that high valuation is a concern.  

Despite uncertain economic outlook, the global equity markets staged a smart comeback driven by better-than-expected Q2’CY22 earnings in US stocks and buying from set of investors positioning for an economic recovery rather than worrying about the potential for a recession, said Kedar Kadam, Director – Listed Investments, Waterfield Advisors.  

The US benchmark S&P 500 has rebounded about 15% since mid-June, halving its year-to-date loss, and the tech-heavy Nasdaq Composite is up more than 20%, Kadam said.  

Following positive global cues, the domestic equity markets too staged a strong comeback, with benchmark Nifty-50 gaining more than 15% from the lows in June-22, he said 

"The return of FII buying, flattening of inflation, softening commodity prices and good monsoon boosted investors sentiments. The encouraging macro readings and sound fundamentals are giving markets new-found hope despite fluctuations," said the Director- Listed Investments, Waterfield Advisors 

What should investors do?  

The benchmark Nifty-50 has added over 2,500 points since lows in June.  

"This sharp rally has pushed the valuation multiples near LT averages (20x+) which in our view makes risk reward less attractive amid uncertain global economic outlook and rising geopolitical tensions. While the domestic economy and earnings have showcased strong resilience, we remain caution at current valuations and suggest a staggered buying approach," said Kadam. 

Explaining the rationale behind this stance, the expert said, our stance is driven by: A) Indian economy cannot stay fully immune to any global economic/ geopolitical shocks; B) Inflation trajectory continue to remain elevated; C) Global & domestic monetary policy tightening to continue; D) The trend in domestic demand recovery not yet broad-based E) In case of a recession reality, the earnings in select sectors could take a major hit