Definitely there is a big question in the mind of many investors regarding sudden rise in the market? Even when a business in economy is at slow pace?
Major reason is the available liquidity in India as well as in the world (US Stimulus).
Fll has started buying from the last three months and Dll were major buyer in early days of fall (March & April) now they are booking profits and can be buyer on market correction.
Who will win the Race? Liquidity or companies performance?
The quote from Mr. Chuck Prince is very interesting at this market juncture.
When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance.We’re still dancing.
Economy is getting started but yes on a slow pace. Many have started believing that economy is back to normal but let me clarify, Market are back to normal not the economy. Tier 3 & Tier 2 cities are seeing a good pace in terms of business against Metros.
More regarding this rally, it is only driven by limited number of stocks 10 to 15 stocks and majorly Reliance till last month.
This make it worrisome
But recently there is a rise in MidCap Index since last month and hence it is seen rally is getting diversified in different stocks.
Should we move some portion of investment from equity? Or market is overheated and there can be correction?
Yes, There can be small hiccups (volatility) in market due to market at high PE and slowdown in economy but no major fall seen in the market as there is no major event seen.
Many has a question whether to switch some portion from equity to debt side at this level.
Our suggestion is to do only if you can reinvest in the market again after the set-up target of fall of yours because when market will fall say 10 to 12% at that point of time there will be many more bad news about the market and hence investor will not be able to reinvest.
Our suggestion is to stay invested for long if your investment horizon is long term.
How to go about fresh investing and strategy?
We have turned very cautious in the near to medium term and from a long-term perspective we are quite constructive on the markets. It seems that investors are less bothered about the fundamentals and valuations of companies but the focus has shifted to what is happening in US and European market. The investment argument based on fundamentals has no place in the minds of investors as markets are inching up on a daily basis and the party is on.
For fresh investment, our strategy is to invest in a staggered manner from liquid to equity for 10 months from now due to Near time risk in market has 3 major reasons:
1) Valuation have moved quite a bit, market is not cheap
2) Possibility of volatility can be expected due to US election
3) Earnings growth will be down in coming 2 quarters
And Long Term Factors which help economies bounce back in long term are
1) Low commodity prices
2) Unprecedented liquidity
3) Falling interest-rate
Currently overall investment strategy should be 50% into debt options for time horizon of one year and 50% into equity via staggered manner.
Lokesh & Bhavin