Indian indices on a new high: What’s next?

economictimes.indiatimes.com:

During the course of these 18 months, the markets have had to digest the volatility on accounts of the Ukraine-Russia war, over $40 billion of FII selling, the fastest interest rates hike by global central banks and concerns about India’s valuation amongst developed and emerging economies. After digesting all of the above, the markets have scaled new lifetime highs and are poised for some more in the coming few months.

However, certain points need to be watched to play out the next 6-12 months considering we approach the 2024 general elections in April–May of next year.Sector rotation Unlike the US markets, which have been dominated by the large 10 companies contributing significantly to the gains, the rally from 16,800 on Nifty in March till 19,000 in June was dominated by more mid and small caps in comparison to large caps. Indeed, HDFC twins, RIL and many other large contributors to the Nifty have underperformed the broader market.

With some of the large cap names still available at decent valuations — the next leg of the rally could start in the large cap names and profit booking may emerge in the small and mid-cap segments. Frothy valuations across some segments may see profit-booking around the quarterly results if they do not come up as per expectations.

Pharma and banking could continue to see some inflows.Commodities The market rally has also been fuelled by softer commodity prices across all segments, leading to margin expansion in many companies. The supply shocks of Covid and the Ukraine-Russia war seem to be past history.

With China coming back on stream in 2023, we are seeing deflationary pressure across goods — leading to increased tailwinds for many consuming / consumer-focussed sectors. The current