Nifty retreats from 25,000 mark amid profit booking: What next? Experts predict this

The Nifty 50's remarkable ascent to 25,000 marks a significant milestone for Indian equities, reflecting a period of robust market performance driven by global optimism, domestic stability, and expectations of interest rate cuts. The index reached a new peak of 25,078.30 in the previous session (August 1) before closing at 25,010.90, securing its highest ever closing position.

Yesterday's rally was fueled by a combination of healthy GDP growth, controlled inflation, strong domestic liquidity from both retail and institutional participants, and favorable monsoon conditions. Additionally, positive signals from the U.S. Federal Reserve regarding a potential interest rate cut in September have further bolstered investor confidence.

Federal Reserve Chair Jerome Powell, in his post-policy decision remarks on July 31, indicated that the first interest rate cut could occur as soon as the Fed's next meeting in September, provided the data aligns with their objectives of managing inflation and employment. This outlook has significantly boosted investor sentiment, contributing to the Nifty 50's surge.

The Nifty 50, after reaching the significant milestone of 25,000, experienced a decline of about one percent on August 2 due to profit booking following a substantial 650-point surge over the past month and a broader market selloff. Despite today's downturn, market experts remain optimistic about the continuation of positive momentum in the Indian market.

Looking ahead, analysts believe that the Indian market will maintain its upward trajectory, driven by strong macroeconomic fundamentals, India's robust global position, and consistent corporate earnings. These factors are expected to support further growth and stability, even in the face of temporary setbacks like today's market blip.

Market experts suggest that investors remain focused on the long-term potential of Indian equities, emphasising the resilience of the domestic economy and its ability to weather short-term fluctuations.

Here's what they suggest:

Market Strategy

Aamar Deo Singh, Senior Vice President of Research at Angel One, advises investors to be selective and cautious, emphasising investments in quality stocks with a long-term perspective. Singh suggests a staggered approach to investing in order to navigate the current market levels effectively.

Neeraj Chadawar, Head of Fundamental and Quantitative Research at Axis Securities, recommends that investors stay in the market, maintain liquidity and focus on high-quality companies with strong earnings visibility over a 12-18 month horizon. Chadawar highlights defensive sectors such as non-banking financial companies (NBFCs), telecom, consumption, IT, and pharmaceuticals as relatively safer bets in the current environment.

Shrey Jain, Founder and CEO of SAS Online, views the Nifty 50's milestone as a testament to strong economic growth, corporate earnings, and rising investor participation. Expectations of strong growth in the domestic economy, positive news flow on interest rates in the USA and policy tailwinds should support stock prices going forward, rewarding investors, he noted.

He suggests that this achievement lays the foundation for the next phase of growth and advises investors to consider stocks of companies with solid balance sheets and a history of earnings growth. Expect stock specific movements in the near term, he adds. 

Robin Arya, smallcase Manager and Founder of GoalFi, expresses cautious optimism. Arya points out that while the Nifty 50's surge reflects robust economic growth, certain sectors like financial services and IT may require more time to contribute to new highs. He also expects some consolidation at the index level. Arya recommends exploring opportunities in healthcare, capital goods, and chemicals, as these sectors present attractive valuations and growth potential. Investors are encouraged to explore these areas for sustainable returns while maintaining a balanced approach to manage risks effectively. Focus remains on identifying value pockets within these promising sectors, Arya advised.

Technical Outlook and Next Target

From a technical perspective, Shrey Jain of SAS Online suggests that if the Nifty 50 sustains above 25,100, the next target could be 25,600. He emphasises the importance of the psychological level of 25,000 as a key support, with potential buying opportunities at 24,800 and 24,500 in case of dips.

Mandar Bhojane, Equity Research Analyst at Choice Broking, notes that the Nifty 50 experienced selling pressure after reaching its all-time high, with immediate support expected at the 24,950 level. Bhojane predicts further upside potential if the index closes above 25,000, targeting 25,200 and 25,400 levels. He advises investors to take advantage of buying opportunities during market dips.

Osho Krishan, Senior Analyst of Technical & Derivatives at Angel One, emphasises the importance of sectoral rotation and focusing on outliers to outperform the market. Krishan highlights the 24,800 level as a crucial support zone, with 25,080-25,100 acting as intermediate resistance.

The Nifty 50's historic rise to 25,000 is a testament to the strength and resilience of the Indian economy and its equity markets. As the market navigates this unprecedented territory, expert advice emphasises a cautious yet optimistic approach. Investors are encouraged to focus on high-quality stocks with strong balance sheets and earnings growth potential while exploring emerging opportunities in sectors like healthcare, capital goods, and chemicals. With expectations of continued positive momentum supported by healthy macroeconomic indicators and global cues, the Nifty 50's journey forward promises to be dynamic. Investors should maintain a balanced approach, being mindful of technical support and resistance levels, to effectively manage risks and capitalise on the opportunities presented by this landmark achievement.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.