Sensex touches 50,000 but faces immediate pullback; are bears catching up now?

S&P BSE Sensex zoomed past 50,000 points on Thursday for the first time since its inception. The move is remarkable considering the March 2020 sell-off which saw the index tank to as low as 25,638. What makes the rally in domestic equity markets even more remarkable is the rapid move charted by the index, adding the last 10,000 points in less than 100 days after it fell to 40,000 at the end of October. The Nifty too was seen mirroring the up-move, reaching new highs as it breached 14,700. However, both Sensex and Nifty ended the day with a negative bias. Many analysts have now been warning of stretched valuations and the milestone Sensex reached today and the immediate weakness augments their warning calls.

Charts suggest more upside

Although valuations may be stretched, on the charts, the rally in equities seems to have more legs for now. “Technically we feel that the market is still continuing series of higher high and higher low. Recently it has formed a higher bottom at 14222 levels. Until the market is not breaking 14200, we could see the levels of 15200,” Shrikant Chouhan,  Executive Vice President (Equity Technical Research), Kotak Securities, told Financial Express Online. He advises accumulating strong companies at major supports but at the same time reduce weak long positions from the portfolio instead of selling profit-making counters.

Although Sensex and Nifty have closed with a negative bias after having zoomed to fresh highs today, the recent history suggests at strong buying emerging from any weakness and that is keeping analysts away from advising any contra trades. “Markets remain in overbought territory and there can be some profit booking,” said Navneet Daga, Lead Derivatives Analyst, YES Securities. “We have witnessed that intraday corrections are being normally bought into and we make fresh highs. Overall trajectory also does not suggest any meaningful downward move as falls have corrected very sharply,” he added.

Range bound move till Budget?

With the Union Budget around the corner, volatility is expected to move higher with equity markets moving within a range. Navneet Daga expects the upside levels of 14,800 to be protected on Nifty till the Budget. On the other hand, Shrikant Chouhan sees India VIX surging to as high as 28-30 while Nifty moving in a broad range of 14,000 to 15,000. 

The recovery from March 2020 lows to a fresh milestone of 50,000 on Sensex has been aided by massive foreign fund inflows in the last few months and now supported by positive earnings outlook. “Overall we expect the market to continue its upward journey on the back of healthy corporate earnings, strong liquidity, positive developments on the vaccine front, broad-based economic recovery and low-interest rates,” said Motilal Oswal, MD&CEO, Motilal Oswal Financial Services.