Nifty unlikely to go past 10,000 anytime soon, keep buying at low levels

For investment, buy in the range of 7,000-10,000 Nifty level - buy 5% at the 10,000 level; raise to 10% at 9,500; to 15% at 9,000; and then keep adding gradually at lower levels

The Indian equity market might have shown a solid rebound last week, but it is not completely out of the woods yet. The rally last week was mainly driven by positive global markets. In other words, the ripple effect of an international rally was seen on domestic equities, too. Therefore, there is a high possibility that this market rally will halt. I don't see Nifty going beyond the 10,000 level at this point.

On the economic front, I don't see a V-shaped recovery in the economy, as the stimulus announced by the government so far is not sufficient. So, a lot of the issues facing corporate India, such as transport and labour movement still persist. The guidelines issued by the government on Wednesday are, indeed, positive for the market. But we need to watch what happens on April 20.

Further, I don't see discretionary spending coming anytime soon, as retail consumers are facing tight liquidity conditions. Also, the unorganised sector is going through a very tough time. Overall, we need to be watchful of global developments, as well as how the coronavirus crisis pans out in India. If the developments are encouraging, it will augur well for the economy as well as markets.

That said, from an investment point of view, we advise buying shares in the range of 7,000 and 10,000 levels for Nifty. At 10,000, investors are advised to buy 5 per cent; at 9,500, they should buy 10 per cent, increase it to 15 per cent when Nifty is at the 9,000 level, and then keep adding gradually at lower levels.

Among sectors, insurance and pharma stocks look promising. As regards pharma, things are turning positive for the sector structurally, too. The US FDA issues are fading, healthcare spending as part of gross domestic product (GDP) is expected to go up for most countries. And generics will play an important role. Hence, these factors are likely to drive pharma stocks.

Between large-caps and midcaps, retail investors are advised to go for large-caps, since they have already witnessed a steep correction. It doesn't make sense for investors to buy mid-caps directly. It is advisable that they invest in multi-cap funds, which invest in large-cap stocks and also put part of the money in midcap and small-cap companies. That would be the ideal market strategy for retail investors in order to have an exposure to small and mid-caps.

(As told to Swati Verma)

Abhimanyu Sofat is the head of research at IIFL securities