New Delhi [India], August 28 : Expectations of strong festival season demand, revival in rural demand, and hopes of interest rate cuts later this fiscal year are expected to support stock markets, brokerage Prabhudas Lilladher said in its latest 'India Strategy' report.
Both Nifty and Sensex have remained buoyed over the past month, holding to their latest bull run, despite rising volatility amidst deteriorating geopolitical situation.
Normal monsoons have raised hopes of demand revival in the festival season. Inflation coming below RBI's 4 per cent target in July, sustained capital expenditure spending by the government while being fiscally prudent to have been lending support to the Indian stocks.
Breaching 5 per cent in June, the retail inflation rate in India softened drastically in July. According to the data released by the Ministry of Statistics and Programme Implementation, retail inflation or Consumer Price Index in July was at 3.54 per cent. Inflation has been a concern for many countries, including advanced economies, but India has largely managed to steer its inflation trajectory quite well.
Rural demand has been tepid since the Covid-19 pandemic due to the cautious stance of rural consumers, high inflation, deficient monsoons in 2023, and a shift in consumer spending. "However, the worst seems over as we are witnessing green shoots in rural demand from the past couple of quarters," the report said.
Liquidity in the Indian markets too remained strong, as foreign outflows are being covered up by the domestic institutional buyers.
"Liquidity remains strong, as domestic inflows have far exceeded FII flows, providing cushion to markets. We believe expectations of strong festival season demand; rural revival and interest rate cuts will provide support to markets," Prabhudas Lilladher said.
It also believes upcoming US elections are the most important factor to watch out for given rising geo-political tensions globally.
The brokerage expects investors to show some tilt towards defensive stocks like consumer, durables, building material, IT services, pharma, and telecom, given high valuations in other sectors.
It also asserts capital goods, infra, logistics and ports, hospitals, tourism, auto, new energy, and e-commerce are great themes, but advised investors to be cognizant of valuations.
Nifty today touched its all-time high of 25,115 points. Prabhudas Lilladher sees Nifty moving towards 26,820 points.
"We expect market consolidation and recommend selective buying on dips, but quality focus needs to be key criteria," it advised.
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