As Nifty crosses 17,000, here is a word of caution for new retail investors

Indian stock markets continued to soar to new highs today with Nifty crossing the 17,000 mark. Skeptics been proved wrong, till now. But the strong rally in Indian markets since April last year, without any significant correction, has made some analysts cautious. They suggest partial profit-taking at the current juncture, particularly for new retail investors.  

“A distinguishing feature of this bull market which started in April 2020 is that it has been remarkably stable without any major correction. So, the newbie retail investors who entered the market since April 2020 (1.42 crore new Demat accounts opened in FY21) have been buying every dip, successfully,” says VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

“The flip side of this relentless bull run is the excessive valuation, which exposes the market to an unexpected sharp correction. This market has proved skeptics wrong, till now. Even while enjoying the party, investors should be prepared for a sharp correction. Partial profit-booking is never a bad idea,” he added. 

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According to Santosh Meena, Head of Research, Swastika Investmart, globally liquidity is one of the important factors which can be attributed to this rally. Most of the central banks across the globe are supporting their economy through easy monetary policy where US Fed is continuing its dovish stance that is leading to lower US bond yields and weak US dollar which are always considered positive for emerging markets like India.

“Other than monetary policy we saw strong fiscal supports by governments across the globe which is helping the global economy to recover sharply from a tough time. The Indian government also announced a lot of fiscal stimulus and now we are seeing its significant impact on the Indian economy, he added. 

The IT sector is the leader of this leg of bull run where Covid-19 acted as a key catalyst for the exponential growth of the Indian IT industry that is also helping headline indices Nifty and Sensex to continue their upward journey, says Santosh Meena.

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IT stocks have bounced back today after pulling back in yesterday’s session due to rupee’s surge. “Experience tells us that the performance of IT companies depends more on the deal wins than the exchange rate. So dips can be used to buy,” says VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Santosh Meena, Head of Research, Swastika Investmart, says the monsoon is weak and that could be a sentiment dampener if the situation doesn’t improve from here.

“On the downside, the 16700-16500 area will act as a strong support zone for Nifty where only a decisive move below 16500 can lead to any short-term weakness,” he added. 

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