End to D-Street party near; look to book profits: Experts

Moneycontrol Bureau

Ever since the doldrums of December, Indian equities have picked themselves up and have been unstoppable. Despite the past few lackluster days, the Nifty has not let go of its strength and today climbed over the key 5400 hurdle for the first time since August 2011.

But after nearly two months of rallying, and over 20% gains since the lows of 2011, the question on everyone's mind is not if the party will end, but when.

Answering that question, Dilip Bhat of Prabhudas Lilladher tells CNBC-TV18 that the Nifty needs a strong set of Q4 GDP numbers to sustain above the 5400 mark. "If we are aiming for a 7% GDP growth, we need to see something like 6.5% and I don't think that is something inspiring. It most certainly is not something that can inspire a bull run," he said. Therefore, he thinks it is best to books profits and stay out till the correction plays out.

Backing up Bhat's views is Jagdish Malkani, member of NSE and BSE, who also advocates selling into this rally. "At the moment the party is on because no one can argue with USD 3 billion of FII money. But I would not advocate buying at these levels by and large," he said.

However, lending the bullish argument, Devangshu Dutta, consulting editor at Outlook says that the rally could continue for a while longer. "The fundamentals don't justify it, but it looks like people want to throw money in the market," he said. He further adds that a rally in February is not something new or unexpected. "We have a historical trend of the market moving up in February generally because of Budget considerations, and this particular year we also have the assembly elections," he explained.

FII flows the determining factor

It is quite evident that the avalanche of FII money flowing in has sustained the bull run in the market. Experts, however, are still unsure as to where this money is coming in from, and more importantly, when it will stop. "We are still groping in the dark because who is to say how much more money will come in. So for the short run, it certainly is slightly tricky," said Bhat.

Dutta adds that people investing in the Indian market will keep a close watch on Greece, the situation in Europe and the confrontation over the nuclear programme in Iran. "These are a few global geopolitical factors which are leading to India becoming a hotspot for FII money," he said.

Foreign institutional investors (FIIs) have pumped in more than Rs 18,000 crore in Indian equities since January 2012.

So where to from here?

Right at the start of 2012, experts had pegged equities to grow by 20% for the full year. However, a month a half into the year, we have already achieved that target. Therefore, experts are looking to bow out while they still can.

"It's been a real heady run till date, which is why I think a correction is imminent," says Malkani. The risk-reward scenario is skewed against one right now, especially for the short term, and therefore he is extremely cautious about buying at these levels. "There are a lot of fun and games ahead, both domestically and internationally. The UP elections, policy action after the dry run we've had on that front, the Budget and more immediately Greece. So the macro stuff has not gone away in one month and nothing has really changed," he said.

Bhat also agrees that the optimism in the market seems to be significantly ahead of what the reality is on ground. "Therefore I think investors should not hurry to buy at these levels," he said. His view is that the market will undergo a serious correction even in the longer run.

For those who are looking to make a quick buck, Dutta suggests going long on the USD-INR contract, that is expecting the dollar to strengthen, and short on the EUR-INR contract. "If things go wrong in Europe, that parent position will make a lot of money," he explained.

Anisha Mappat
anisha.mappat@network18online.com