Rs 26L cr richer in a wk! What should D-St investors do now?

Leaving even seasoned investors scrambling for a playbook, the Sensex has vaulted 2,876 points while the Nifty surged 4.2% in the last one week as a heady cocktail of macro boosters and geopolitical relief turbocharged Dalal Street. Retail investors had an even wilder ride: midcap and smallcap indices shot up by 7% and 9%, respectively, fanning fresh FOMO and fattening portfolios across the board.

Nearly Rs 26.5 lakh crore in investor wealth was minted in a week that had it all—ceasefire headlines, cooling inflation, FII money gushing in, and a market that looked like it had taken a shot of adrenaline. Nifty is now less than 5% away from its all-time high. The question echoing through trading desks and WhatsApp groups alike: Is this sustainable, or is the rally running on fumes?

According to Ajit Mishra, SVP at Religare Broking, the index has broken decisively out of a three-week range and could now aim for 25,200–25,600 levels. Support? That's sitting back at 24,800, with stronger hands at 24,400. But he’s not sounding reckless.

“We maintain a bullish outlook on the market and advise investors to adopt a “buy on dips” approach. With all major sectors participating in the rally on a rotational basis, stock selection based on a favorable risk-reward profile remains critical,” he said while asking traders to avoid taking contrarian positions without strong supporting signals.

What lit the match? A surprise ceasefire between India and Pakistan set the tone, slashing geopolitical tension overnight. That was followed by April inflation data that dropped to 3.16%, the lowest in nearly six years—raising hopes of a dovish RBI in the coming policy meeting. Then came a cascade of positive global cues, as tariff tensions between the US and China appeared to thaw.

Vinod Nair of Geojit Financial Services believes the macro tailwinds are just getting started. With crude oil prices sliding, a normal monsoon expected, and global central banks leaning dovish, there’s room for this rally to run. The low inflation print gives RBI room to stay accommodative. Combine that with improving earnings and foreign buying, and you have a strong base for momentum, he said.

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And momentum it is. FIIs poured in ₹15,925 crore, while DIIs added ₹9,557 crore to their equity carts. India VIX collapsed 24%, signaling a dramatic fall in perceived risk. From defence to metals, NBFCs to auto, sector after sector caught fire. Defence stocks in particular were turbocharged after India’s Operation Sindoor showcased the prowess of Made-in-India military systems.

Valuation risk
Vipul Bhowar of Waterfield Advisors said unlike previous trends, this rally is more widespread—surprisingly so, given that mid- and small-cap stocks are trading at higher valuations.

“As advisors, we continue to recommend investing in tranches, with a preference for large-cap stocks. Valuations in the Nifty index are near the long-term average, but the mid- and small-cap segments are considered relatively high, which poses risks at current market levels. While there haven't been significant upgrades, the ongoing results season has turned out to be better than many had anticipated.”

Investors hunting themes would do well to look at defence, infrastructure, and railways—areas that have not only outperformed but also enjoy strong policy and budgetary tailwinds. But as the gains pile up, so does the risk of froth, especially in pockets where earnings haven't kept pace with price. And while the Q4FY25 earnings season has been better than feared, managements remain guarded—especially exporters still wary of global demand softness.

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Quantum AMC's Christy Mathai also warned that valuations remain expensive across most parts of the market.

"If you were to just look at Nifty50, a valuation of 21.5x is expensive. We were more constructive on the market 6-8 months ago but investors will now have to possibly be looking at moderate returns," he said.

Just remember—when the ride is this fast, the brakes can be brutal.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)