After starting the week on weak note, domestic markets are likely to end on positive note amid positive global cues and slowdown in FPI selling.
However, analysts advise investors to remain cautious, with Omicron cases rising across the globe.
Prashant Tapse, Vice President (Research) at Mehta Equities, said Nifty marched ahead due to lack of follow-through selling despite the recent enormous FII selling, spiking inflation, a hawkish Fed and overvaluation concerns.
Global cues positive
SGX Nifty at 17,140 (730 am IST) indicates a 80-point gap-up opening for Nifty futures, which on Thursday closed at 17,059. Led by tech-heavy Nasdaq, the US stocks gained between 0.5 per cent and 0.85 per cent overnight. Equities across Asia-Pacific are up around 0.4-0.5 per cent in early deal on Friday.
"While market is making small up-move we don't see any major positive movement in broader index," Rahul Sharma - Co-owner, Equity 99, said and added: "In coming times, we expect good buying in Midcaps and smallcaps as they have made good correction. Investors are advised to hold liquid cash in hand to take advantage of any dips in future."
According to Shrikant Chouhan, Kotak Securities, While investors would be closely watching developments on Omnicorn variant of coronavirus, rising inflation threat and the resultant uptick in interest rates in key development markets, selective buying could be seen in next few sessions.
Technically, the Nifty is trading near the important retracement level and a quick correction is not ruled out, if it trades below 17,000, said Chouhan and added for the traders, 17,000 would now be the sacrosanct support level and above the same, the uptrend formation will continue up to 17,150-17,200. On the other hand, below the psychological 17,000 support level, the Nifty could correct up to 16,930-16,850".
Credit Suisse Outlook
Credit Suisse, global investment financial advisory firm, said, it is not expecting Indian stock markets to fall drastically anytime soon. it expects some de-rating in equity markets worldwide, including India.
"However, we do not expect Indian equities to decline toward historical average P/Es any time soon. De-rating for Indian equities should be limited from hereon, in our view, given India’s improved macroeconomic and corporate fundamentals. In the near term, Indian equities remain susceptible to FPI selling, and in the event of further corrections in the next few weeks, risk-reward may start turning favorable for equity investors," it added.
Credit Suisse compared to the last five-year average, the Nifty index is currently trading at a 9.3 per cent higher valuation or 20.1 (as of December 17), and at the peak, the valuation touched 22.8 times in October.
"However, looking at the Nifty constituents and their respective valuation premiums/discounts, we believe that about 30 per cent of these constituents, which account for 35 per cent of the Nifty index weight, still offer valuation expansion potential," it added.
"On the other hand, we expect about 24 per cent of the Nifty constituents (15 per cent in weights) to have a high probability of valuation contraction. We also note that 38 out of 50 Nifty companies (around 76 per cent of the overall Nifty Index weight) will likely see ROE expansion in the next two years versus the pre-Covid three-year average."
New-age stocks to enter Nifty
Global major also said that several companies having high valuations were added to the Nifty index over the past three years". Going ahead, we may see more new-age or internet-based companies getting added to the index. Thus, valuation may naturally look much higher than the historical average as India is experiencing an acceleration in the start-up revolution."