Sensex Rally Had Weak Structure and Lack of Investor Participation

An important feature of the rally that took the Sensex to record high was its weak structure and lack of enthusiastic investor participation, says V. K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

The market lacks the momentum to take it convincingly to new highs. There is no support from the mother market US, either. The S&P rally of 13.6 per cent YTD was led by just 10 tech stocks. Such concentrated rallies are unlikely to last long, he added.

In India, even though the rally is more broad-based, there is no valuation support to take the market much higher. So investors should wait and watch for clearer direction from the market, he added.

Early next month expectations regarding Q1FY24 results will influence the market. Investors may wait for cues from the results to know which sectors will outperform for the rest of the year.

Foreign portfolio investors (FPI) inflows into India are likely to moderate going forward due to rising valuations in India and the rising interest rate scenario, say analysts.

V. K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services said FPIs continued their May strategy in June too, so far. Globally, Japan continues to attract the biggest inflows, followed by India.

They were big sellers in China and also sold in South Korea and Thailand.

In India, FPIs were big buyers in financials, autos and capital goods. Since these segments are doing well and their prospects look good, they are likely to attract more inflows, going forward.

FPIs continued selling in IT and metals since these sectors are facing many short term headwinds, Vijayakumar said.

Till June 23rd FPIs had invested Rs 30,669 crore in Indian stocks this month. The yearly FPI equity inflows have risen to Rs 59,922 crore, he added.

Going forward, he said FPI inflows are likely to moderate due to rising valuations in India and the rising interest rate scenario.

FPIs were aggressive buyers in the market in May having invested Rs 43,838 crore through the stock market and primary market put together.

A survey among foreign portfolio investors showed that India is now the consensus overweight among all emerging markets. In May, India attracted the largest investment among all emerging markets, and FPIs were sellers in China, he added.