How Street Reacted To Sensex Hitting A New High

The rally was led by defensive sectors such as IT and consumer goods makers. The cyclical sectors such as industrials, cap goods should be joining the rally in the coming weeks as earnings numbers start coming in stronger.

Rally has been concentrated to very few pockets. We are in an environment of higher interest rates and trade war fears. As a result, investors are taking risks away from their deployment. Combine that with local factors like re-calibration of schemes, which aggravated the recent underperformance of mid caps and small caps. We are a long-short fund, and since we can take positions on both the sides, we are consistently staying bullish on consumers and IT and companies on the rural side, and less constructive on metals and mining space, and highly leveraged stocks.

The current rally in the market is largely on the back of falling crude oil prices, and as the threat of inflation eased for the near-term. That apart, rupee depreciation is expected to get arrested resulting in a higher amount of yield reflected in the bond portfolio. All these factors are now translating into the stock prices of PSUs, OMCs. The U.S.-China trade war has resulted in crude prices cooling off, which is benefitting India. We expect the rally to continue unless there is any negative news coming from China.

The market is trading at all-time high despite a lot of headwinds like trade-war tension and the rupee depreciation. This rally is majorly fuelled by very few stocks like HDFC Bank Ltd., Kotak Mahindra Bank Ltd., Reliance Industries Ltd., HDFC and TCS. However, the broader market is still not out of woods as the NSE Nifty Midcap and Smallcap indices are trading far lower than from their all-time high levels. The first quarter earnings season has kicked in with high expectation. TCS and IndusInd Bank reported their number, which were better than market estimates. Investors should keep eye on this earnings season. If the season goes well and earnings pick up, then we may see a broader rally in markets. It may see higher levels in near future. Investors should be selective in this market as valuation are little stretched and buy those stocks where numbers are good and growth visibility is there.

It is a few large caps which are driving the index up. Breadth in the market is poor which shows the lack of wider conviction. Earnings is looking robust but macro environment is bit shaky. Markets are likely to remain choppy.