On Monday, Sensex dropped over 1 per cent after hitting a record high of 47,055.69 points in early trade. The benchmark has been continuously recording new highs over the last many sessions, and is up more than 82 per cent from its March lows. It has logged more than 13 per cent gains year-to-date.
“It is difficult to say if it’s a pause in the rally or is it the onset of correction. The valuations are definitely stretched,” said independent analyst Ambareesh Baliga.
“The GDP-market cap ratio is around 95 per cent, which is typically the bubble zone. We saw it reaching 150 per cent in 2007, and we all know what happened in 2008,” he warned.
According to Ambareesh Baliga, while a correction looked imminent after the dream run, it was unclear when would it set in.
“That said, the bubble can become bigger. While the correction is imminent, we don’t know when it will happen. The gush of liquidity may keep inflating it for now,” he added.
A few believed that while investors may opt to lock in some gains, the broader market sentiment remained upbeat.
“I guess some part of profit booking is bound to come in at these levels. However, one should not get too disturbed seeing daily moves. We are in the last week of December, and we may see some lull in the market at this point,” said Deven Choksey, Group Managing Director, KR Choksey Investment Managers.
“That said, I think any meaningful correction, could be a buying opportunity,” he added.
According to him, companies that have entered a capex mode may see profit booking as their earnings growth may not immediately reflect the benefits from such investments.
So, what should be the strategy right now? Should an investor resort to shorting or cash out the gains?
Short, or shorting, refers to selling a security first and buying it back later, with the anticipation that the price will drop and a profit can be made.
Independent market analyst Sandip Sabharwal said his preferred strategy is to go into cash rather than trying to short.
“So that is one strategy where you achieve what you thought would be achieved over a long run, in a very short period of time and you cash out. That should be the first thing you would do in a market which is rising in such a euphoric manner rather than shorting, because when you short, you have to have the ability of riding out any frenzied move which could happen,” Sabharwal said in an interaction with ET Now on Friday.
“So, if you go short and the market continues to rally another 200-300 points, then you are looking at that position every day, You think that no this is wrong and let me get out and then at the time you get out maybe the market starts falling,” he added.
