Sensex hits 66k, Nifty tops 19,550; Is it time to play contra theme?

Domestic equity markets have been on a roll recently with benchmark indices hitting new record highs. Amid this stellar secular rise in the equity markets, investors have turned slightly cautious, with increasing inflows in the contra funds, according to the latest AMFI data.

BSE's 30-share barometer Sensex hit 66,000 on Thursday, while NSE's Nifty50 topped new highs, scaling 19,550-mark for the first time during the session. However, investors chasing the rally are also wary of corrections and their allocation in the contra funds has increased in the last month.

Indian equity markets are regaining their bullish momentum after a brief period of consolidation, after release of lower-than-anticipated US CPI numbers, resulting in a significant drop in the US dollar index and a moderation in US bond yields, said Santosh Meena, Head of Research, Swastika Investmart.

Both benchmark indices- BSE Sensex and Nifty50- have gained about more than 10 per cent in the last three months, while they have gained 23 per cent in the last one year. Similarly, BSE midcap and smallcap index have gained up 30 per cent in the last one year, the data suggests.

Interestingly, 23 value funds or contra funds saw a net inflow of Rs 2,239 crore during the month of June, with total asset under management (AUM) rising to Rs 1,04,685 crore as of June 30, 2023, the data from AMFI suggests. Number of folios increased to 49,36,198 during the month.

However, playing contrarian theme does not mean going against the tide. This means selecting the undervalued or under-owned pockets of the market where valuations leave room for potential upside for the investors, making them an attractive bet to hedge against the mounting risks of corrections.

In the current market scenario when the market is near its peak investors are trying to find contrarion bets more suitable as the risk-reward is more favorable there. As these stocks comprise either the beaten-up sector or those which have not run up much comparably and are available at a reasonable valuation with long-term positive outlook, said Mukesh Kochar, National Head-Wealth at AUM Capital.

"There may be some short-term challenges for these sectors but the long-term outlook is promising. This is the reason why investors are betting big on these funds. Investors have become value conscious for sure and that is promoting them to look at this strategy. As in this kind of euphoric market you always try to protect your downside," he added.

Other analysts tracking the markets said that bouts of profit booking and consolidation phases shall not be ruled out from the markets and investors are looking to reap benefits of both rally and corrections on Dalal Street. It is tiresome to predict or time the markets and investors often fail in this. One should rather follow proper asset allocation and discipline of investing.

Markets trading at all-time high along with strong participation from institutions. Investors are looking at pockets where the risk-reward looks favourable and where the prices have not run-up away from the underlying fundamentals, said Dinesh Gupta, Fund Manager at Torus Oro.

"Contra Funds as a theme provide first-mover advantage to investors at times when the valuation rationalizes and the underlying fundamentals get priced into the trading prices for stocks," he said.

Contra funds are designed to identify and capitalize on investment opportunities that go against the prevailing market trends, said Anil Rego, the founder, and CEO of Right Horizons. Contra funds can also serve as a risk management tool within an investment portfolio, he said.

"The contrarian approach of these funds may provide a hedge against market risks and help cushion against potential downturns," he added. "Since these contra funds tend to play a value game by logic considering the current valuations, such Funds might add overall value to one’s portfolio."

 

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

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