Nifty 50 is up 10% in the first half of the year; can it cross 26,000 by December?

Despite high volatility due to domestic and global factors, Indian stock market benchmarks—the Sensex and the Nifty 50— ended the first half of the current calendar year with healthy gains. The Nifty 50 rose 10.5 per cent, while the Sensex clocked a 9.4 per cent gain in the first six months of 2024, hitting record highs of 24,174 and 79,671.58, respectively.

On the other hand, the mid- and small-cap segments of the market outperformed the benchmarks with significant margins even though analysts have warned of their unsustainable valuations. The Nifty Midcap 150 index jumped 25 per cent, while the Nifty Smallcap 250 index has seen a gain of 22 per cent year-to-date (YTD).

Shares of Mahindra and Mahindra, Adani Ports and Shriram Finance have been the top gainers in the Nifty 50 index, while those of LTIMindtree, Asian Paints and IndusInd Bank ended as the top losers in the index during the first half of the year (H1CY24).

From the midcap space, shares of Oracle Financial Services Software, Rail Vikas Nigam (RVNL), Hindustan Zinc and Cummins India surged over 100 per cent each. On the other hand, from the Nifty Smallcap 250 index, shares of Cochin Shipyard soared over 200 per cent, while eight other stocks jumped over 100 per cent each in just six months of this year.

Top 10 Nifty 50 gainers

Top 10 Nifty 50 gainers in H1CY24

Top 10 Nifty 50 losers

Top 10 Nifty 50 losers in H1CY24

Top 10 gainers in Nifty Midcap 150 index

Top 10 Nifty Midcap 150 gainers in H1CY24

Top 10 losers in the Nifty Midcap 150 index

Top 10 Nifty Midcap 150 losers in H1CY24

Top 10 gainers in Nifty Smallcap 250 index

Top 10 gainers in Nifty Smallcap 250 index in H1CY24

Top 10 losers in Nifty Smallcap 250 index

Top 10 losers in the Nifty Smallcap 250 index in H1CY24

Why did the Indian stock market rise in H1CY24?

After a solid 6 per cent and 8 per cent gains in November and December, respectively, last year, the market benchmark Nifty 50 cooled off in January, ending almost flat (down 0.03 per cent) for the month. In the subsequent three months, it gained in the range of 1-2 per cent, reacting to macroeconomic prints and riding expectations of the start of the rate cut cycle and political stability after the Lok Sabha elections.

Then came election-related nervousness in May, which caused the Nifty 50 to end the market with a 0.33 per cent loss. But in June, the index bounced back sharply as uncertainty on the political front was gone, and the market shifted focus to policy announcements and the Upcoming Budget. For the month of June, the Nifty 50 rose nearly 7 per cent.

Clearly, most gains for the index came in June after elections were over and the market shifted focus to upcoming events. The return of foreign portfolio investors (FPIs) and continued buying by domestic investors amid the prospects of strong economic growth, policy continuity, and an above-normal monsoon are the major factors that boosted the market in June.

The road ahead

The domestic market is expected to continue its upward march in the next six months of the year, with easing inflation, the progress of monsoons, and healthy economic growth. The chatter around rate cuts will also influence market sentiment.

However, most positives are already factored in, and the market may stay within range if no fresh trigger comes in.

"Markets in the second half of calendar 2024 could be less ebullient than in the first half," said Deepak Jasani, Head of Retail Research, HDFC Securities.

However, Jasani underscored that India is one of the few large markets that offer visible growth at a good pace over the next few years, and it is unaffected mostly by global developments.

A decent monsoon in terms of spread and intensity could improve growth prospects even further while bringing down inflation.

Jasani believes a rate cut by the US Fed over the next few months could make equity as an asset class even more attractive, benefiting Indian equities through more inflows. The Union Budget and the other policy announcements expected over the next few weeks will be analysed in detail to examine their impact on the economy, corporate earnings, and valuations in general.

The rising valuation of the Indian stock market is also a concern. While the largecap segment still has some valuation comfort, the mid and smallcap spaces are too hot at this juncture.

"All equity segments—large-caps, mid-caps, and small-caps—are trading at the higher end of their TTM (trailing 12-month) P/B (price-to-book) ranges, indicating subdued returns in the coming year. While large caps appear relatively less expensive, there is a significant divergence in valuations between BFSI and non-BFSI sectors," Nitin Bhasin, the head of institutional equities at Ambit, told Mint.

"We do not anticipate market multiples sustaining, as FY25 is expected to normalise earnings trajectory estimates. Negative earnings surprises have increased over the last two quarters, with aggregate NSE 500 earnings surprises at -3 per cent. This trend will likely continue, leading to a potential de-rating of market multiples over the next 12 months," Bhasin said.

However, some analysts still believe that the Nifty 50 could see another 10 per cent gain for the rest of the year. A 10 per cent rise from the current level will make the index surpass the 26,000 mark by the end of the year.

"We have a cautious-optimistic view that after the Union Budget excitement, the Nifty 50 could encounter resistance around the current levels, which might lead to a phase of consolidation or slight correction from its peak before resuming its upward journey," said Raj Vyas, vice-president of research at Teji Mandi.

"At the beginning of the financial year, expectations were set for a significant upside of at least 15 per cent when Nifty was trading around 22,400 levels. Given the substantial gains witnessed since then, we now anticipate a further approximately 10 per cent increase from the current 24,000 points, potentially marking a new milestone by year-end," said Vyas.

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