Sensex hits 50K: Investment strategies to play the markets ahead of Budget

The BSE barometer of top 30 firms, S&P BSE Sensex, reached the 50,000-mark for the first time on Thursday, hitting a record high of 50,140 in morning deals. The market capitalisation of listed firms on the BSE, too, touched a record high of Rs 199 trillion. 

Strong liquidity support and hopes of a quicker economic rebound have nearly doubled the Sensex’s value in 10 months. From its 3-year lows of 25,639, hit on March 24, 2020 amid the outbreak of Covid-19 pandemic, the benchmark index is now up 96 per cent. 

"Sensex crossing the important milestone of 50,000 is a telling sign of economy and markets shifting orbits on broad-based recovery and better days ahead. The combination of strong capital inflows, low interest rates and leaner balance sheet of India corporates along with government measures for growth is expected to lift the economic growth ahead. The same is likely to resonate in capital markets, thereby keeping the markets buoyant in the long term," says Vijay Chandok, managing director and CEO of ICICI Securities.

Sensex rewind

The benchmark index on one of the world’s oldest stock exchanges, BSE, was launched on January 1, 1986. The index remains one of the most sought-after and tracked indices to gauge the health of the economy.

The index began trading with a measure value of 750 and reached 1,000 on July 25, 1990. In about two years, it doubled and hit the milestone of 2,000 on January 15, 1992. In quick succession, the index hit the 3,000-mark (February 29, 1992) and 4,000-mark (March 30, 1992) before crashing due to the Harshad Mehta scam.

In the following years, the index hit the 10,000-mark for the first time on February 7, 2006, and rallied another 10,000 points within a year to hit 20,000 on December 11, 2007.    

Its milestone of 25,000 was achieved in June 2014 when the Narendra Modi-led Bharatiya Janata Party won the Lok Sabha elections. Fast-forward 6 years and the index has doubled to 50,000.  

But does the momentous rally call for caution?   

Analysts advise investors to hold their horses and invest smartly as the rally may not be over just yet.   

Deepak Jasani, head of retail research at HDFC Securities, suggests rotating funds to safer bets like gold or debt funds to play markets from here on.

“Investors should not get overexposed to equities at the current juncture. This is a liquidity and sentiment-driven rally and may witness correction in the near-term. Investors may either choose to invest in other asset classes like gold, real estate, or debt funds, or may sit on cash and invest when markets have corrected,” he says.

However, Nischal Maheshwari, chief executive officer for institutional equities at Centrum Broking, advises investors to stay put in the market as any correction is expected to be bought into.

“Investors need not change their trading or investment strategies at the moment as any correction that we may see due to profit-booking would be easily bought into on the back of global liquidity,” he says.

Besides, better-than-expected December quarter results will likely lead to earnings upgrade going-forward which, he says, will justify the current premium valuations.

"Valuations at current levels are expensive with the Sensex trading at P/E multiples of  around 21xFY2022 EPS estimates. While the markets may be expensive at current levels, we believe that Indian equities will command a premium given that we are still in the early part of an earnings recovery cycle where multiples tend to be higher. However if we look at the markets on an FY2023 basis then valuations appear to be more reasonable at ~17.5x," says Jyoti Roy, DVP - equity strategist at Angel Broking.

Strategy post Union Budget

Shrikant Chouhan, executive vice-president, Equity Technical Research at Kotak Securities says that markets will remain volatile ahead of the Union Budget and the ideal strategy right now should be to buy on dips.

“At the index level, investors can buy between 49,600 and 49,500 and keep a final stop loss at 49,200 for the same. On the other side, the market can scale higher with the uptrend wave likely to continue up to 50,800 – 51,750. The focus should be on commodities and auto companies,” he says.

Maheshwari of Centrum Broking, meanwhile, says that the Union Budget has lost its significance over the past few years and is unlikely to sway the markets in an extreme direction.

“The government has rolled out reforms on the supply side post the Covid-19 pandemic. Markets now expect the government to take steps to spur demand in the economy. Therefore, this massive rally ahead of the Budget shouldn’t be a cause for worry. The rally is here to stay as the liquidity won’t go anytime soon,” he explains.

Motilal Oswal, managing director and chief executive officer of Motilal Oswal Financial Services concurs with the view and believes that the markets may remain in uptrend as the Union Budget could potentially lay the foundation for a long term economic growth.