After rallying for four consecutive sessions, the Indian stock market witnessed a period of consolidation, with both the Sensex and Nifty 50 trading flat. On Monday, the domestic equity market extended gains, with the Nifty 50 closing above the 25,100 level, and the Sensex closing at 82,445.21. However, Tuesday's trading suggests a potential pause as investors weigh various factors, prompting the crucial question: Is it time to book profits?
Several factors are contributing to the current market scenario. Firstly, after a sustained period of gains, some profit booking is natural. Investors who have seen their portfolios appreciate may look to lock in those gains, leading to a temporary stall in the market's upward trajectory. This is reflected in the "small red candle" formed on the daily chart, as noted by analysts, signaling mild profit booking or hesitation.
Global cues also play a significant role. Optimism surrounding U.S.-China trade negotiations has been a supporting factor, yet the market acknowledges that a resolution is unlikely to be swift. Investors are closely monitoring these developments, and any signs of uncertainty could trigger further profit-booking.
On the domestic front, positive factors such as robust Q4 corporate earnings, the Reserve Bank of India's (RBI) liquidity-boosting measures, and forecasts of an above-average monsoon continue to underpin market sentiment. The return of foreign portfolio investors (FIIs) is another encouraging sign. However, these factors appear to be already priced into the market, leading to a phase of consolidation.
Technical analysis provides further insights. The Nifty 50 faces immediate resistance near the 25,200 and 25,300 levels, where open interest (OI) data indicates a high concentration of call options. This suggests that breaking through these levels may require significant bullish momentum. On the downside, support lies around 25,000 and 24,900, where significant OI build-up on the put side is observed. According to Nagaraj Shetti, Senior Technical Research Analyst at HDFC Securities, a sustainable move above 25,200 could open the next upside towards 25,600 levels in the near term, with immediate support placed at 24,900 levels.
So, is it time to book profits? The answer depends on individual investment strategies and risk tolerance. For short-term traders, the current consolidation phase may present an opportunity to book profits and re-enter the market at lower levels. Given that valuations have become stretched after the recent rally, some profit booking can act as a hedge against unexpected negative developments.
However, for long-term investors, the underlying trend remains positive. Dips in the market are likely to be bought, supported by ample liquidity and strong domestic fundamentals. The advice from Shrikant Chouhan, Head of Equity Research, Kotak Securities, is that as long as the Sensex trades above 82,000, the uptrend is likely to continue, potentially moving up to 82,800 - 83,000.
Ultimately, the decision to book profits or stay invested should align with one's investment goals and risk appetite, while carefully considering both domestic and global market dynamics.
