Sensex, Nifty 50 hit fresh all-time highs for the second consecutive day; time to book some profit?

The domestic market is soaring high. Equity benchmarks Sensex and Nifty 50 hit their fresh all-time high for the second consecutive session on Thursday, December 28, on gains led by banking and financial heavyweights.

Nifty 50 opened at 21,715 against the previous close of 21,654.75 and hit its fresh all-time high of 21,801.45 during the session. The index finally closed 124 points, or 0.57 per cent, higher at 21,778.70.

The Sensex opened at 72,262.67 against the previous close of 72,038.43 and hit its fresh record high of 72,484.34 during the session. The index ended with a gain of 372 points, or 0.52 per cent, at 72,410.38.

The BSE Midcap index also hit its fresh record high of 36,556.64 during the session, finally ending 0.66 per cent higher at 36,528.19.

The BSE Smallcap index closed 0.23 per cent higher at 42,382.30.

The domestic market has been on a strong bullish run since November. Following a 5 per cent gain in November, both the Sensex and the Nifty 50 have jumped over 8 per cent in December so far.

Experts underscore healthy domestic macro numbers, cooling inflation in the US, hopes of rate cuts, sustained fall in the US bond yields and dollar and buying by foreign portfolio investors (FPIs) are some of the main factors behind the rise in the market.

Besides, experts underscore that after steep gains in mid and small-caps, investors' money is now moving to largecaps due to valuation comfort.

Retail investors’ participation has also been a key factor behind the domestic market's rise.

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Also Read: Sensex, Nifty 50 hit record highs, up nearly 8% in December so far; 5 reasons why the market is gaining - explained

Time to book some profit?

While analysts are positive about the market's prospects for the medium to long term, they flag concern that the sharp rally in the market has inflated the valuations of the market which can trigger some consolidation. Risk-averse investors can book some profit at this juncture.

As Mint reported, the volatility index India VIX—which normally rises when markets fall and vice-versa—has risen to a 10-month high, likely signalling trader discomfort at record high levels.

The latest leg of the rally has taken valuations past historic levels, with the Nifty trading at a one-year forward price-to-earnings (P/E) multiple of 19.9 times versus the five-year median of 17.97, with the Sensex P/E at 20.56 times against a historic 18.77 times median. The Sensex one-year forward is, in fact, near a two-year high.

"A significant market indicator is the volatility index VIX rising above 15. Investors should take this as an indication of high volatility ahead. Remaining invested is important in a bull market. But chasing the market at high valuations would be highly risky," V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

"The markets tend to remain in an overbought condition with a strong uptrend which is majorly sentiment driven. Going forward, we feel we may see a price or time-wise correction and hence some profit booking is definitely healthy and warranted at these record levels; providing an opportunity to sit on cash and invest on dips if any," said Aditya Gaggar, Director of Progressive Shares.

"For investors and traders alike, a balanced approach is crucial. Positional traders may consider booking partial profits while keeping a watchful eye on potential developments. Implementing trailing stop-loss orders and maintaining prudent risk management strategies can help navigate the market's uncertainties," said Mandar Bhojane, an equity research analyst at Choice Broking.

Shrey Jain, Founder and CEO of SAS Online says investors should take a stock-specific approach instead of focusing on a broad-based surge in stock prices.

Jain said knee-jerk reactions to news or the market hitting a new high should be avoided.

Moreover, he pointed out that the third quarter results should offer inputs about the earnings growth.

"Going forward, earnings growth should dictate allocations to stocks. Investors are better off not chasing momentum stocks with no fundamentals backing the surge in stock prices. Given the flow of events such as election outcomes and monetary policy review, bouts of volatility cannot be ruled out. Buying on dips can be a good strategy for accumulating fundamentally strong large and mid-cap stocks. Nifty may be headed towards 22,400 in the near term," said Jain.

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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.