Momentum traders likely to stay long amid bullish trend in markets

There is strong support for Sensex at 58,000-59,000 and Nifty at 17,000-17,300

The Sensex and the Nifty hit new highs, with the 30-share index crossing the 60,000-mark and the latter moving past 17,900. The major indices have returned over 60 per cent in the past 12 months. In the past month, both Sensex and Nifty have returned 7.3 per cent each. Their returns are almost the same in the calendar year, with the Nifty (27.4 per cent) just pipping the Sensex (25.5 per cent).
 
All investor classes — FPIs, domestic investors and retail investors — have contributed with net buying. FPIs have net equity purchases of Rs 64,655 crore since January 2021, while domestic institutions have contributed Rs 22,635 crore.  Equity assets under management of mutual funds have grown Rs 3.27 trillion this year (From January 1 -August 31, 2021).
 
Retail investors have also been net individual buyers. Smaller stocks have outrun the large indices: The Nifty Midcap 400 has returned 83 per cent over the last 12 months, and 9.5 per cent in the past month, while the Nifty Smallcap 250 has given back 92 per cent and 9.3 per cent, respectively.
 
The major indices are trending around a P/E of 27 (last four reported quarters). Given good growth off low bases, the P/E ratio has declined from peaks of 41-42 (February 2021) to current levels, even though the indices have moved up. This is a strong signal — it means profitability growth is outrunning share price returns. In historical terms, valuations are much higher than the five-year average of P/E of around 19.
 
Technically speaking, indices hitting new highs means there are no reasonable target projections. There is strong support at 17,000-17,300 for the Nifty and 58,000-59,000 for the Nifty. The trend is obviously bullish. Momentum traders will likely stay long. Some may have stop losses in the 16,500-16,800 zone where there’s another strong support and a lot of open interest in the Options segment.
 
Every sector has a positive performance. But relative sector performances over the past month reveal some churn — metals, which returned 149 per cent over the past year, have only returned 0.98 per cent in the past month. The sell-off is amid fears
that Chinese growth may slow.

Pharma stocks (2.9 per cent return) have underperformed and so have PSU banks (3.5 per cent). The FMCG (7.5 per cent) performance is in line with index performance, while auto (+6 per cent) is an underperformer.
 
Big gains over the past month are from realty, energy, media, IT and private banks. The media performance (33.9 per cent in a month) is news-based, coming mainly from Zee Entertainment (85.5 per cent) and Dish TV (74.9 per cent).
 
Energy (11 per cent) has a dispersed return. Reliance Industries (13.5 per cent), Indian Oil (10.6 per cent) and ONGC (19.8 per cent) have more than offset losses in Adani Green (-9.5 per cent) and BPCL (-9.1 per cent).  IT (9.7 per cent) has big gains in L&T Infotech (25.4 per cent), Mindtree (31.7 per cent), Mphasis (20.25 per cent), and HCL Tech (17.9 per cent). Every IT major has gained in value through the past 12 months when the index returned 87 per cent.
 
Realty (33.2 per cent in a month) has a 136.85 per cent return in 12 months. Every stock in the Nifty Realty has positive returns. Most have double-digit returns in the past month. The better performers are Godrej Properties (50 per cent), Oberoi Realty (39.2 per cent), Sunteck Realty (37.5 per cent), and Sobha (37.3 per cent).
 
The data seems to indicate some money flows out of metals and into realty, while IT remains a stable outperformer. The last month has also seen speculative positions taken in private banks like YES Bank (17.3 per cent), IndusInd (15.5 per cent) and RBL (14.4 per cent) in the hopes of good Q2 results.