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Jul 14, 2017 02:49 PM IST | Source:

Confused @ 9,900 on Nifty. Should investors book profits, buy on dips or exit markets?

Investors who invested in markets or specific stocks are sitting on a big chunk of profits and the next logical questions in front of investors — should they book profits, buy on dips, or exit markets completely.

When markets move in unchartered territory it always gives investors cold feet about putting their money at higher levels. The S&P BSE Sensex and Nifty rallied by about 20 percent each so far in the year 2017 to hit a record high of 32,109.75 and 9913.30 on Friday.

Investors who invested in markets or specific stocks are sitting on a big chunk of profits and the next logical questions in front of investors — should they book profits, buy on dips, or exit markets completely.

Well, the answer might not be that simple as it would depend more on the risk profile of investors in general. Market mavens tracking D-Street minute by minute are of the view that it is time for investors to book some profits and make some fresh investments in quality stocks on dips, but one thing they are sure of is not to exit from markets.

History tells us that the last time when Nifty was trading at a trailing PE of 25x was back in 2010 and 2008 and we all know markets failed to sustain at those levels and saw a steady decline.

However, for the year 2017, Nifty50 which is trading at a trailing PE of 25.17x and a forward PE of 19.5x is not alarming for analysts because earnings are expected to bounce back in a big way especially after GST; although intermitted profit booking declines cannot be ruled out.

“Why 2017 is different – if we look back, we haven’t seen any steady growth in terms of earnings in the last 4 years which hovered around 380-410 (EPS). Back in 2008-2010, earnings were growing at 15-20x and the correction which we saw was largely driven by global factors (GFC),” A.K.Prabhakar, Head -Research at IDBI Capital told Moneycontrol.

It looks like the market is readjusting itself. And, especially after GST, both top line and bottom line will pick up. It might start reflecting in next 3-4 quarters. So, I am not altogether worried about market valuations, but I am worried about the way few midcaps and sectors,” he said.


Valuations might look stretched it looks like the market will sustain this high valuation or some would say ‘a new normal’ for markets. There are various reasons which are going in favour of India markets such as low commodity prices, global rally, robust fundamentals of Indian economy, stable currency and domestic savings which have increased incrementally after demonetisation.

Failure of other asset classes to deliver handsome returns is also pulling investors to equity markets wither via direct equities or by investing via mutual funds (systematic investment plans).

“Since our Indian markets have run up in the past 12 months, valuations are already at a premium to long-term averages (19.5 times forward P/E), However, we need to view this in context of an economic and earnings up cycle, so early cycle valuation looks stretched, but are sustainable,” Hemang Jani, Head - Advisory, Sharekhan told Moneycontrol.

“We remain highly constructive on equities as an asset class for long-term investment, as we expect earnings growth to accelerate over the next 2-3 years, led by new reforms and a supportive macro environment,” he said.

Jani further added that his Sensex target is 41,000 and the Nifty target is 12,500, (over next 18-24 months), which would give upside 28% from current levels.

Sentiments are worrisome:

Valuations might look ok, but sentiments are pointing towards greed which usually leads to some intermittent corrections in markets, explain experts. There are a handful of sectors wherein valuations are at alleviated levels but in many others, still, the valuations are fairly quoted.

“At 9,900 on Nifty50, more than the valuation as a concern, it is the sentiments that are reaching at peak readings. The real cause of concern is the sentiment which has extremely turned one-sided and the majority are bullish about the future prospects of the companies,” Jimeet Modi, CSE, SAMCO Securities told Moneycontrol.

“First day IPO’s are listing at a premium, an important indicator to measure sentiments which have reached alarming levels. Shares like AU Small Finance, CDSL, HUDC, Eris Life Science etc. which were richly priced during their IPOs have still raced ahead irrationality, this phase of the market is pointing to extreme greed which is why in fact it is time to be fearful,” he said.
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