Stock market today: Sensex, Nifty 50 jump over 1% each; time to book profit?

Stocks market today: The Indian stock market witnessed healthy, across-the-board buying in morning trade on Friday, August 9, which boosted the benchmarks, the Sensex and the Nifty 50, by over a per cent each.

The Sensex opened 1,098 points, or 1.4 per cent, higher at 79,984.24 against its previous close of 78,886.22. On the other hand, the Nifty 50 opened at 24,386.85 against its previous close of 24,117 and jumped 1.3 per cent to the level of 24,419.75. The mid and smallcap indices on the BSE also jumped by over a per cent each.

The Indian stock market witnessed gains on Friday, following solid gains in the US market overnight after the US Labor Department data showed weekly unemployment benefits claims fell to a seasonally adjusted 2,33,000 against expectations for 2,40,000. This soothed recession fears, which resurfaced after a weaker-than-expected July jobs report.

The Indian stock market has been experiencing high volatility recently, reacting to global cues, central banks' actions, geopolitical tensions, Q1 earnings, and valuation concerns. The volatility index India VIX is up about 18 per cent in August so far. A sharp rise in market volatility has made it challenging to make investment decisions in the stock market.

"An important feature of this rally is that corrections are mild and recovery is fast. Some profit booking, particularly in the overvalued mid and small-cap segments, makes sense. Excessive overvaluations are unlikely to last long," said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Time to book profit?

Experts say the market's medium—to long-term outlook remains positive, but volatility may continue in the short term. Most of them believe investors should use corrections to buy quality stocks for the long term.

"India’s fortress balance sheet and unhindered growth prospects make it resilient to global uncertainty. The rich valuations could trigger a near-term correction, but that would act as an entry opportunity,' said brokerage firm Emkay Global Financial Services.

"We remain bullish on Indian equities from a two-to-three-year perspective. Manufacturing and SMIDs (small and midcaps) continue to outperform, albeit to a lesser extent, with more aggressive bouts of sector rotation," Emkay said.

"Over the longer term, therefore, we expect industrials, materials, and consumer durables to continue their post-Covid outperformance. This should drive the SMID outperformance, too, as the manufacturing sector is more SMID-heavy. This is evident from how much more broad-based earnings have become," Emkay said.

Apurva Sheth, the head of market perspectives and research at SAMCO Securities, pointed out that the volatility in global markets has risen sharply over the last few days mainly because of the Bank of Japan's move on raising interest rates, fears of US recession and geopolitical tensions. When valuations are expensive, markets tend to worry more about such things.

Sheth believes that volatility is likely to remain high; however, booking profits completely and sitting on cash wouldn't be the right thing to do. Instead, one should switch out from high beta aggressive stocks and switch to defensives like FMCG and pharma. One can also allocate some portion to gold, said Sheth.

Experts observe that most of the narrative is already priced in the market, and it is likely to adjust to the fundamentals.

Technical experts say investors should add long positions if the market falls to support levels. However, if the market approaches resistance levels, some weak long positions can be reduced. However, one should avoid aggressive profit bookings.

"The strategy should be to look for adding long positions if we see the market is dropping to support levels. On the other side, if we see the market is moving towards resistance, then there we should look for reducing, weak long positions. We are not advising to take the profit aggressively," said Shrikant Chouhan, Head of Equity Research at Kotak Securities.

Chouhan observed that the market is consolidating after falling vertically from the highs. Global cues are uncertain, and if we see further uncertainty, then we could see weakness in the market. In the coming week, US inflation numbers will also decide the next leg of activity in the market. In the short term, the market may be heading for 24,500 or 24,650. At the same time, if it breaks 23,900, then the chances of hitting 23,500 would be higher," said Chouhan.

What should Indian investors do?

Nifty 50 may hit a new high soon as fears of economic slowdown ease and rate cut chatter grow stronger.

Neeraj Chadawar, the head of fundamental and quantitative research at Axis Securities, believes that as the market focus turns to fundamentals, the shift in investment styles and sectors will significantly impact the generation of excess returns.

Chadawar anticipates that the Nifty 50 could reach a new high in the near term.

"The long-term outlook for the broader market remains appealing. In this context, two themes – 'growth at a reasonable price' and 'quality' – appear attractive at the present juncture," said Chadawar.

"It is expected that there will be a shift in market positioning towards defensive sectors from the domestic cyclical sectors in the near future," said Chadawar.

He believes that largecap private banks, telecom, consumption, IT, and pharma stocks offer more margin of safety in the short term.

"We recommend investors to stay in the market and maintain good liquidity (10 per cent) to take advantage of any market dips in a phased manner and to invest in high-quality companies with high earnings visibility with an investment horizon of 12-18 months," said Chadawar.

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