The Indian stock market after hitting historic highs had begun to show signs of uneasiness in February post budget as a host of issues from the imposition of long term capital gains and nervousness in the global markets had apart from steep valuations emerged as major concerns for the markets. There was also hue and cry over automation and Artificial intelligence and the way in which it would affect the IT sector which resulted in further panic in the markets. Meanwhile, there was the issue of NPA’s getting out of hand with many scams tumbling out leading to further correction in the markets. There was the news of Nirav Modi which ran upto Rs.13,000 crores which shook PNB resulting in a loss of almost 40% of its capital which further spooked market sentiment.
On the global market front the decision of US president Mr. Donald Trump to impose tariffs on Chinese goods made the market jittery. However the initial panic subsided and markets took it in its stride. We believe that there has been some recovery in the market gradually as global market panic also eased. However with key state elections due this year ahead of next years general elections markets are likely to remain volatile and investors are advised not to deploy their funds in one go but gradually. As India is heading to general elections next year investors should adopt a wait and watch mode and caution should be exercised.
Our View: The nifty at the current value of 10570 trades at about 26.24x its FY17 EPS. History has shown that whenever nifty crosses 22x its trailing twelve month EPS it is better to be cautious as the peak valuation was around 28x its twelve month trailing EPS in 2000.However investors should not be too pessimistic about the markets and should use every correction in the markets as an opportunity. With the global growth having slowed down and India being one of the fastest growing economy the market is bound to see sharp pull backs when there is a correction. Investors must be ready to latch on to some good stocks when there is a correction and must have 40% of their portfolio’s in cash that will help them to go for bottom fishing and make substantial gains. Always remain 60% invested while maintaining 40% cash which will help you to cushion any fall in stock markets beyond anticipated levels. So it is better to always remain on guard and save our hard earned money.