The Sensex and Nifty rebounded from Wednesday's lows but the indices still await positive cues from global markets and developments at home which could lead to a sustained recovery.
Even as BSE market capitalisation rose to Rs 1,48,00,614 crore signalling a gain of nearly Rs 4.63 lakh crore since Monday's lows, analysts say market is witnessing a short-term recovery which may not continue in the near future.
Vinod Nair, head of research at Geojit said, "Whereas in the medium term, the market is under a tactical shift within the financial asset classes from equity to bonds. This negative trend will stabilise as valuation sets to a normal level along with reduction in bond yield. For example, Sensex has given a return of about 45% over the last 2 years, without a meaningful correction in price and time other than a short-term volatility during demonetisation."
On Tuesday, the Sensex fell 1,275 points and Nifty was down 390 points within minutes of opening on US stocks crumbling under the effect of high government bond yields.
Since then, the Sensex has recovered 957 points to the current 34,439 level. The Nifty too has gained 305 points from Tuesday's low of 10,278 points.
Deepak Jasani, head of retail research at HDFC Securities said, "The macro situation in India (inflation, GST Collections, crude prices) seems to be taking time to improve. This along with global developments in terms of inflation/interest rate trajectory could weigh on the markets over the next few days. While the known factors seem to have been discounted, emerging negative factors could influence the future direction of the market on the downside."
Since February 1, the Sensex has lost 1,708 points and Nifty is still down 491 points taking into account the recovery market staged today.
While Sensex rose 330 points or 0.97% to 34,413 level, Nifty staged a 100 point (0.96%) recovery from Wednesday's lows
Commenting on the higher side of market, Jasani said, "It is essential that earnings do not disappoint in case India's macro continues to be subdued or deteriorates further. On upmoves, 10,723 (being 50% of the fall) could provide strong resistance. Our markets have risen too fast and discounted too many positives in advance. Hence the indices need some time correction if not value correction."
Investors still should be cautious while buying stocks amid a recovering market.
Raman BV, head of investing business at Way2Wealth Brokers said, "While buying a stock, investors should focus on growth stories supported by visionary management, scalability of business, cash flow generation, valuation and competitiveness of the company. Volatility is a part of the market but if above mentioned parameters are checked properly at the time of buying a stock, there is no need to rejig the portfolios unless one see another compelling opportunity. Few sectors on which we are positive are speciality chemicals, infrastructure, auto ancillary, discretionary consumption, textile and real estate ancillary companies."
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