Q-do you feel the markets at the current levels are overbought
The Sensex is currently in the mid 22000 range and Nifty is upwards of 6500. The Sensex has given a return of 4.8% (3 months), 9.10% (6 months) and a whopping 18.80%(1 year). So one can safely surmise that the smart money has not only already invested but is already reaping good returns. At current levels the dice is loaded against the market with a major event risk that has to be factored in. That said, traders and investor have shown a cautious approach and the rally has not run wild. This can be borne out from that fact that the markets have witnessed healthy corrections from time to time and post each such correction the market has continued its upward move. Even if we look fundamentally, the markets have not been discounted very richly over the earnings of the next couple of years. Hence I would not say that the markets are over priced but it can be said that they may be temporarily over bought.
Q- The rally would be short term and we will see major correction in the short term, your comment .
Most of the current euphoria in the markets is based on the ‘Modi Wave’ and its resultant impact on the economy and markets. The elections will throw out the results in less than a months time, but even in the event that the best case scenario also come true, the markets will see a healthy bout of selling, as the traders would like to take home profits. Alternately If the election result is anything short of a healthy majority then there would be severe selling by both, the long purchasers (who will scurry to book whatever little profit that may be left) and the short sellers who will then try to capitalise on the below expectation election results. This would be the major correction in the short term.
Q-there seems to be no retail participation in the rally .your advice to the common investors.
The current state of participation or rather lack of participation by the Retail Investors is a cause of concern for not only the entire broking community but also the Regulators and Senior Officials of Ministry of Finance. But the causes of low investor interest are many.
To name a few dearth of good quality IPO’s, The indiscriminate destruction of confidence & wealth caused by throw away pricing of follow up Offers of Public Sector Undertakings by Govt. of India, The inability to create confidence in the minds of the retail investing public that the Markets are a credible place to invest savings and Promoting the Future & Options System of trading as against Investing wisely for the long term.
That said, at the current moment the investors should not get swayed by the current momentum but draw out a strategy based on a long term approach. I think the common investor should pass the one time opportunity of seeing an election rally and concentrate on building a quality portfolio, consolidating it from time to time based on sound advice from professionals. The expectations of returns should be pegged at a realistic levels keeping ones risk appetite in mind.
Q- which are the sectors u would say are safe to invest in the current markets?
The market has been favouring IT, Pharma, FMCG and Banking but the best companies in these sectors are not cheap. Whereas it does require some expertise to identify the potential gems hidden in the midcap scape in these sectors. Investors could consider some rather beaten down and out of favour sectors like Realty and Metals.
Q- According to many global fund managers European markets as well as the US markets are likely to do well in the coming quarters... your comment and what do u see happening to Indian markets in such a scenario...
In my recent interactions with Global Investors, Intermediaries & Fund Managers the one thing that clearly comes across is the fact that they are once again watching India closely, and would they like to re invest in the markets with renewed vigour, but that will happen after there is clarity as to who forms the new Government and what are their policies. Irrespective of the US and European markets doing well, if we can address the niggling worries and set on a course to remove bottlenecks and encourage businesses, money will once again flow from all those Foreign Investors who are still waiting on the sidelines.
Q- What are the short term and long term levels do u see in the markets.
The Sensex will be in the range of 20500-24500 (which means a 8-10% range in either direction) for the next 30-45 days. Over the long term (a horizon of 3-5 years) the Sensex should be in the range of 19000 – 32000.