Despite volatility in the global bourses on account of trade war, the Indian markets had the strong week on a positive note (especially at large caps represented by Sensex and Nifty). Nifty continued to make higher highs and moved above an important psychological level of 11000.

COMMERCIAL BREAK
SCROLL TO CONTINUE READING

This is the first time Nifty traded above that crucial 11000 level after February 1, 2018. Further, during the week, Sensex also scaled to an all-time high, driven by select large caps such as TCS, Infosys, Reliance Industries and HDFC Bank.

One can witness the polarised performance in the market wherein select large caps are reaching all-time highs on daily basis; but there is no spill-over effect on mid-and-small-caps. Due to this, the widespread feeling and sentiment in the market are still low despite Sensex being at an all-time high.

A cocktail of macro-headwinds-and-micro-tailwinds leading to split disposition in the market structure with bull-market-in-Nifty-and-bear-market-in-mid-and-small-caps turning the once optically raging bull into an ageing bull. While Nifty is within kissing distance of its all-time high, during the last few months, the midcap and smallcap indices witnessed 15.3% and 20% correction, respectively, from the recent peak on January 18. Consequently, many mid-and-small-cap stocks witnessed a sharp fall of about 30-50% from their peaks. About 67% of the BSE500 index companies have corrected over 20% from their 52 week high prices.

This is a typical market, where strong hands are buying the strength and shorting the weakness. Hence, we are witnessing sharp rallies in the stocks which are trading around 52 week high; while beaten down stocks are continuously seeing selling pressure.

Watch this Zee Business video here:

From Indian markets context, our view is 2018 is a year of consolidation. We believe top priority of investors in 2018 should be capital preservation through efficient asset allocation (increasing allocation to large caps, high-quality mid-caps and hedging strategies). On the equity front, the stock selection has to be spot-on as markets have become quite unforgiving for stocks even with minor taint. Markets have been rewarding right stocks quite generously, as smart money is eagerly chasing quality.

We are in the winner-takes-it-all market with top quality stocks getting top valuations, and markets are ignoring companies with doubtful credentials even though optically they appear to have low valuations.

By, Jagannadham Thunuguntla 
(The writer is senior-VP and head of research (wealth), Centrum Broking)
Source: DNA Money