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The markets have rallied in the past few weeks, with the benchmark indices rising by more than 14% since their lows in June. FPIs have been selling relentlessly since November 2021 and July 2022 turned out to be an excellent month for the Indian markets, as they started turning into net buyers.

The stock markets across the world staged a remarkable comeback amid record-high inflation and the fears of a looming recession. Central banks have been hiking interest rates aggressively in order to curb inflation. Fed Chairman Jerome Powell recently said that the pace of interest rate hikes could slow sooner than expected. This led to positive sentiment.

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“The sharp decline in the dollar index from above 109 to below 106 indicates that the flight to the safety of the dollar is over for now. Nifty valuations are again moving to the higher side. Investors have to exercise caution. After the expected run-up in financials, now, capital goods, autos – particularly passenger vehicles and the commercial vehicle segments – and select pharmaceuticals look interesting. High-quality financials will continue to be resilient,” said Dr V K Vijayakumar, chief investment strategist at Geojit Financial Services.

Analysts say that there have been ten instances over the past thirty years when the Indian indices have not entered a bear market (a fall of a minimum of 20% from the top). The Sensex falls anywhere between 10% and 20%, but not beyond that. Usually, it reclaims its lost ground in an average of two months, with a minimum time of one month and a maximum of 5 months.

They say that the Sensex fell about 16.8% from the top, in the last 42 days. Therefore, if the past average might hold true, then, the benchmark index could recover and rally further to reach a fresh all-time high.

Written by Simran Bafna

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