Bull run to continue into the new financial year

Week Ahead

This week marks the start of a new financial year where the market is expected to continue with its bullish momentum of last week and is likely to hit new highs, surpassing its previous high of 22526 levels. Investors are likely to react to the US GDP and PCE data that got released over the extended weekend last week as it would provide some insight over Fed’s next action. Many more economic releases are lined up this week too including PMI data of US, UK and India and also the US Non-Farm Payroll data for February, which would be important to watch out for.

RBI’s monetary policy on Friday will be keenly awaited where status quo is expected but the commentary and the outlook will be important. Auto stocks will be in the limelight as the monthly sales data starts releasing from Monday. Moreover, with the election starting in April, we believe government-centric stocks could start coming into focus.

Last week, Domestic equities ended FY24 on a bullish tone with Nifty up 28.6% while the broader market gained 60%-70%. It was a truncated week with just three trading sessions where Nifty bounced back strongly and ended with gains of 315 points (1.4%) to close at 22327 levels. Broader market saw much sharper recovery of more than 2% post fall of 7-14% over the last few weeks. Except for IT, all sectors ended in green with realty, auto, infra and PSU banks gaining 3-5%.

Realty stocks continue to be in momentum as the demand remains strong resulting in declining inventory. Unsold housing stock fell 16% in Q1CY24 in tier 1 cities where sales rose 8% during the quarter. Even infra stocks are rallying on the back of strong order book and rising government capex in the sector.

NBFCs came into limelight following the relaxation of regulations by the RBI regarding lenders’ investments in alternative investment funds (AIFs). Even PSU banks saw renewed buying after the media reports that RBI is expected to conduct more variable rate repo auctions ahead of the April monetary policy review this week to address tight liquidity in the banking system and reduce year-end pressure.

The overall domestic sentiments got a boost after India’s GDP growth forecast got revised upwards by both Moody’s and S&P Global rating agencies. Further decline in domestic current deficit to 1.2% of GDP in Q3 and more than Rs 50,000 crore buying by domestic institutional investors in the month of March added to positivity. 

On the global front too sentiments turned positive, fuelled by the US Fed maintaining its stance for three potential rate cuts this year that led to a rally in global markets. Even a few recent data releases highlighted the resilience of the US economy and added to positivity. 

Overall, we expect the market to continue with its uptrend supported by many positive macro and micro factors. However, volatility cannot be ruled out given the start of elections this month. We believe large caps would do better compared to the broader market given valuation comfort over there. But investors can selectively look at mid and small caps which have become attractive post recent correction and where earnings growth visibility is robust.

(The writer is Head – Retail Research, Motilal Oswal Financial Services Ltd)