Sensex can hit 87,000 levels by year-end; stick with large-caps: Analysts

The S&P BSE Sensex topped the 80,000-mark for the first-time ever in intraday trades on Wednesday, July 03, 2024, led by strong gains in banking shares, especially HDFC Bank that surged 4 per cent to Rs 1794 levels. The BSE benchmark index took just seven months to complete its journey from 70,000-mark to the 80,000-mark.

In the process, the BSE Sensex has gained 10.8 per cent so far this calendar year 2024. The index had surged as much as 7 per cent in June alone on the back of optimistic economic growth prospects post the Lok Sabha elections results.

Analysts believe there is more room for an upside going ahead, but investors need to be patient as it will not be a runaway rally for the markets from here on. Domestic cues in the form of budget, the new government's 100-day agenda, progress of monsoon, inflation levels, interest rate action of the Reserve Bank of India (RBI) and corporate earnings growth are some of the factors that the markets will keep a tab on.

Globally, geopolitical developments, outcome of the elections in major countries, especially the United States (US), central bank policy action and oil prices are some of the factors that will have to be monitored.

The latest Fedspeak on US inflation, said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, is positive news for equity markets globally. Responding to the inflation print of 2.6 per cent with nil month-on-month increase, Fed chief Powell on Tuesday made a dovish remark that the US is on a disinflationary path.

"The Fed’s next rate action is likely to be a rate cut, which is a good news for the global equity markets, including India. The RBI also is likely to follow suit with a rate cut in the next policy meeting," he said.

The markets, according to Gaurav Dua, senior vice-president, head of capital market strategy & investments at Sharekhan by BNP Paribas, have broken out of a range and look strong from a short-term perspective. That said, he believes the market valuations are not cheap at the current levels and investors should stay with quality names in the large-cap universe.

“There could be some pain in the broader markets, especially after a 15-16 months of a strong up move. We have been advising our clients to cut exposure to the small-and midcap stocks (SMID) and stick to the large-caps. SMID are trading at 32x PE on trailing basis, as compared to 23.5x - 24x for the large-caps,” he said.

Technically, the BSE index has now crossed the yearly R2 (resistance), placed at 79,950, as per the Fibonacci chart. Thus, the Sensex is now likely to test R3 placed at 81,750 levels next.

Going ahead, the Sensex can potentially rally to 87,650 levels in the next six months of 2024; with interim resistance seen at 84,250 levels. The bias for the BSE benchmark index, technical charts suggest, is likely to remain bullish as long as the index holds above 75,600 levels for the rest of the year. Near-term support for the Sensex is seen at 78,100 levels as per technical charts.

“The momentum is strong and can take the Nifty50 index higher to 24,500 levels in the days ahead. It will take a breather there and spend some considerable time consolidating. Once a strong base is formed, the index can then spurt to 25,600 levels by CY24-end. The corresponding levels for the Sensex is around 85,000 levels,” said Ajit Mishra, senior vice-president for research at Religare Broking.