Nifty Bank hits record high, Sensex eyeing uncharted territory. Should you go with the flow?

The banking index had on May 15 fallen short of touching the previous all-time high of 44,151.80 reached on December 14, 2022, by just 0.10 points. In the opening session today, the barometer zoomed past the previous peak comfortably and rallied around 400 points or 0.9% to 44,418.

Nifty50, which broke the barrier at the 18,600 level, is now within kissing distance of its previous peak at 18,887.60 touched on December 1 last year.

Similarly, Sensex which scaled past the 63,000 mark in the morning is less than 600 points away from its peak at 63,583.

HDFC twins were the biggest contributors to the upside in both Sensex and Nifty as they traded higher by over 1% each. In the banking index, all 12 counters were in the green, with HDFC Bank contributing to most of the gains, followed by ICICI Bank.

During the day, midcap indices scaled fresh peaks while Nifty Auto and Nifty FMCG also scaled new record levels.

The tentative deal on the debt ceiling between US President Joe Biden and top congressional Republican Kevin McCarthy is acting as a near-term relief to stock markets worldwide.Back home, sustained buying by FIIs, positive macroeconomic trends like FY23 GDP expected at 7.1%, CPI inflation (April CPI inflation is 4.7%) coming within RBI’s comfort zone, positive monsoon forecast and sustained buoyancy in tax collections, can provide fundamental support to the rally, analysts say.

But it is important to appreciate the fact that at higher market levels, valuations will be difficult to justify and this can attract selling pressure, said Dr V K Vijayakumar of Geojit Financial Services.

With the March quarter earnings season being in its last leg, investors are now training focus on hopes of a dovish monetary policy in the second half of FY24.

“Globally, the Fed minutes meanwhile have offered some soothing words, indicating that additional policy firming may not be required as it could take a toll on growth. But at the same time, Fed members acknowledged the challenge on the inflation front, maintaining that the fight against rising prices is far from over,” said Mitul Shah, Head of Research at Reliance Securities.

What should traders do?
FOMO is back on the Street as Nifty, which was consolidating between 18,050-18,400 zones in the last three weeks, managed to break the 18,400 resistance on Friday and then also took out the 18,600 level today.

Analysts have warned traders to resist the urge to buy on the higher side where the risk-reward ratio may turn out to be unfavourable. “Thus, we recommend buying on dips with a stop-loss of 18300 on a closing basis,” said Deven Mehata of Choice Broking.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)