Much to the disappointment of the bears, the market refuses to fall…and there is little reason to believe it will, absent a major negative shock.
Why?
The reason is simple. There is just too much money (i.e., liquidity) flowing into the market. Foreign investors may have sold, but domestic investors have more than made up for it.
In stark contrast to the past, where foreign institutional investor (FII) selling was the main reason for corrections, now their selling does little to scare the market. Selling by foreign funds (just like their buying) is now seen as a part of the normal functioning of the Indian market.
This means that the upward pressure on stock prices will remain intact as long as domestic investors keep investing. This will be the case even if the Nifty itself does not rise too much.
Indeed, the Nifty was in a broad range between 22,000 and 26,000 for more than a year. This fact did not dampen the bullish sentiment on Dalal Street.
And now that the Nifty has come close to breaking out of this range, questions will be asked about how far the market can rise.
Can the Nifty reach 30,000 in 2026?
Given the current market positioning, it seems likely.
After all, 30,000 is just 15% away. That’s not a lot, to be honest. Markets have rallied much more than that in short periods.
The recent price movement of the Nifty makes continued upside a possibility.
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As we see it, there are two ways the Nifty can get to 30,000 in 2026.
• Mostly fundamentally driven
• Mostly liquidity driven
The difference between the two would be the time taken for the Nifty to get there.
The rally would be liquidity driven if the Nifty rises sharply, i.e., a few months.
The rally would be fundamentally driven if the Nifty rises slowly, i.e., 6-12 months.
Also, the market is unlikely to fall in a major way without a change in market sentiment from positive to negative among the retail crowd.
Could we see the start of a new bull market?
The Nifty is now closer to its all-time high of around 26,200 than it has been since the correction began last year.
So, it’s natural to wonder if we are seeing the start of a new bull market.
Well, we wouldn’t go that far. The Indian stock market still has a major hurdle to overcome before investors can be comfortable about the idea of a new bull market, and that’s earnings growth.
There were no major negative surprises in the recently concluded earnings season, and that made analysts happy.
Now, this is not a sign of a bull market in which analysts expect earnings to beat their high expectations.
But we could be getting there.
If corporate India starts delivering on the growth front over the next quarter or two, then the case for a new bull market would become strong.
We will have to wait and see. As of now, it makes sense to remain a little cautious and consider stocks only where there is a margin of safety in valuations.
How should you approach the markets now?
The best approach would be to prepare for both a correction as well as a new bull market.
This involves the following…
• Strictly staying away from fundamentally weak stocks that will surely fall in a correction.
• Being vigilant about stock valuations (not recommending overvalued stocks).
• Recommending timely profit booking.
• Maintaining a watchlist of fundamentally strong stocks with good long-term potential.
If the stocks in your portfolio go up, consider booking some profits. If the stocks on your watchlist go up, there’s no need to feel bad. Don’t give in to FOMO (fear of missing out).
There is nothing wrong with sitting on cash if the stock market doesn’t offer an opportunity to buy a fundamentally strong stock at a reasonable price.
If stocks you want to buy are all overvalued, then don’t buy any of them. You don’t have to buy because your friends, family, co-workers, think it’s the right time to buy. It’s as simple as that.
Happy investing.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com.
