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Mr Investor, Are You Listening? There Is Enough Room For Sensex To Come Down

The euphoria is hard to miss but there’s another factor that investors should not ignore – hope.

The liquidity driven rally has taken benchmark indices to record highs, along with nearly 100 stocks on the BSE, but will the rally hold? This is one question which everybody is asking right now.

The S&P BSE Sensex surpassed its previous lifetime high of 30,024.75 recorded on March 4, 2015, to hit 30,184.22 on Thursday while the Nifty50 hit a fresh record high of 9,367 on Wednesday.

The euphoria in the market is hard to miss but there is another factor which investors should not turn their blind eye on i.e. ‘hope’. The hope-based rally drove Indian market to record high supported by strong global and domestic liquidity. But, it is time to turn cautious.

The benchmark indices are trading in uncharted territories and given the fact we are not completely decoupled from the rest of the world, chances of a correction is higher in the short term, although the bull market argument still remains intact, suggest experts.

It will be difficult for investors to make easy money but for long term investors, any corrections towards 9,000 will be a good buying opportunity.

“In the short-term, the rally that we are seeing is largely led by global factors. The recent bounce we have seen post 9,000 as well has to do with an EM rally, global equities everybody has pounced because of the Macron trade or the tax reforms in the US, but the near-term the global tide seems to be lifting the Indian equities meaningfully,” Sanjay Mookim, Director, India Equity Strategy, BofAML told CNBC-TV18.

 

“The worry is that since we are not decoupled because of a specific growth, any global correction would affect us as well. Given valuations are so high, there is enough room for the market to come down. We advise caution in near-term,” he said.

Mookim is not alone with his cautious stance on market. Some experts say that the pain could well be felt in the near-term because there are a lot of headwinds with respect to some global as well as domestic triggers.

Saurabh Mukherjea of Ambit Capital told CNBC-TV18 said that stock market, by and large, is overvalued, but not in a bubble territory yet. “We are saying the Sensex should be around 31,000 – that is not enough upside to take a conviction buy in the market,” he said.

“However, that said the stock market is not what is worrying me. In fact what is worrying me is the state of the bond market and the elevated levels of pricing or rather the very fine levels of debt pricing that we are seeing in the non-convertible debenture (NCD) market,” said Mukherjea.

Experts advise investors to remain cautious but that doesn’t mean they go short on markets. Investors can stay long but with don’t forget to put a stop loss in place or hedge their portfolio with some put options.

Dalton Capital believes that the Street seems to be assuming that there are no problems or hiccups seen.

“GST will unsettle businesses in India, French elections have not given a complete verdict, NPA problems for banks in India are yet to be resolved,” UR Bhat, Managing Director, Dalton Capital Advisors told CNBC-TV18. While a few pockets are seeing growth, overall growth has been lacking, he said.

“Currently, the market is taking the best of outcomes of all events. So, it is quite clear, that there can be quite a lot of hiccups ahead,” Bhat added.

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