Is it time to book profits?

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Is it time to book profits?

The market is heading higher and some experts are bullish that it is poised for some more upmove. The pertinent concern is whether to take part in the rally or wait in the sidelines for some more consolidation before booking profits.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Market to take cue from interplay of commodity and currency Market cues: FIIs net buy $569.3 mn Is Nifty stuck in a congestion zone? S&P, Dow fall for second week on recovery woes Choppy session: Will markets hold firm? ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets

The market is heading higher and some experts are bullish that it is poised for some more upmove. Now the pertinent concern is whether to take part in the rally or wait in the sidelines for some more consolidation before booking profits.

In an interview to CNBC-TV18, Sandeep Shah of Sampriti Capital advises that it is prudent to remain invested, look for nuggets in the markets, but also stay hedged.

Shah says that there are still a lot of exciting companies which are available at fairly reasonable prices and some of which continue to do well.

He, however, warns, "As and when, if the market were to turn, there is not going to be any warning before it happens. That continues to remain a strategy going forward."

According to Shah the most sensible strategy is continue to stay hedged and pay for protection.

Below is a verbatim transcript. Also watch the accompanying videos.

Q: Would you take profits here or do you think markets could head even higher?

A: If you broadly look at the macro factors first, the US continues to show signs of slowing down, with serious concerns of growth there. Europe continues to hold up reasonably well, but you do wonder whether it's the lull before the storm. If you look at China, export numbers have been sequentially declining in growth terms, they are still growing at a rapid pace. The environment doesn't really seem very conducive for an extended rally. The dollar index seems to have bottomed out and the concern is that could rise.

If you switch back and look at India, there are two ways of finding out if there are excesses in the local market. One is to look for retail frenzy which leads to exorbitant or excessive valuations in midcaps and small caps. There unfortunately in the cash segment, we still find pockets of value, there are still a lot of exciting companies which are available at fairly reasonable prices, and some of which continue to do well.

The other way to look at excesses is to actually look at the derivatives market. The derivatives market actually suggests that excesses are building up because the futures position is probably the highest since January 2008. The volatility index (VIX) is at an all time low. Even if it were to head a little lower from here, you cannot argue for it to go substantially lower from here.

As far as derivatives market is concerned, it clearly looks like caution is being thrown to the wind. We continue doing what we have been doing for the past few months, is to actually stay invested, look for these nuggets, but also stay hedged. As and when, if the market were to turn, there is not going to be any warning before it happens. That continues to remain a strategy going forward.

Q: Do you think we are approaching some kind of a turning point, given the kind of technical factors you spoke about in the futures markets? Do you think tactically it still makes sense to stay long, given the kind of flows we are seeing?

A: It would have been very easy to get into a significant amount of cash. As the derivative markets are suggesting, we also saw some excesses. Of course we have seen some stocks fly around for no reason. We haven't seen these excesses in the midcap and smallcap space, there will always be some excesses, but if you look at it as a rule there are still so many interesting stocks.

We are continuing to stay hedged and continue to pay for protection because that is really the sensible thing to do. If liquidity continues, the real concern is whether we are seeing something which we saw in the last quarter of 2007, where the world was showing signs of trouble, but as far as India was concerned things could never look better. The one change that has happened every since then, is that things in India relative to the world have actually improved.

In that sense if in 2007, it was say perhaps 80% hope and 20% fact, I think this time around we have probably got 30-40% hope and about 60% fact. That is the difference. If we were to see a serious selloff, then I am sure investors will take profits every where.

It's also important to remember that anecdotal evidence suggests that the money is really exchange-traded fund (ETF) money. It is not only the seasoned long only guys who are actually investing. Remember that money is almost as hot as hedge fund money. A change there, coupled with the fact that the derivatives market is showing signs of overheating could cause us to have this correction which hasn't happened.

We have seen a correction after every quarterly result, but this time we haven't. I must point out, the last few results that came in of Tata Motors and State Bank of India (SBI) actually helped sentiment though Tata Motors was more because of global factors not local factors, so I would actually discount that but SBI was purely local factors.

Q: What do you think the market is most sensitive to, in terms of a potential negative cue, which triggers of a correction? These falls in the US market of 5-7% periodically don't seem to rattling sentiment to any extent in the market. There is no correlation between those falls in the US indices and the local market here?

A: I agree, but you need to see a serious and severe correction in the US for it to affect sentiment here. Obviously, if what people are saying that if the US market is an ongoing correction which means that its going to bounce back, the incentive will be to actually buy in India. If you were to see for example another severe 20% correction, then sure the effect will be felt in India as well.

One of the interesting things that seem to have happened is the perception where there is a structural change and there is a cyclical element to it. I want to break up those two and look at both differently. There is a structural element in realizing that some of these emerging markets earnings growth is far safer. Of course the attended risks are still there whether our neighbouring countries and the naxalite violence and so on and so forth.

There is a sense that emerging markets aren't as safe as they were perceived to be many years back especially given India's fiscal position, given the fact we have had steady government policies plus of course we have started seeing bit of reform, its not been significant but there are bits and pieces. That is the structural move.

As far as the cyclical element is concerned again, if we were to see a 20% correction in global markets, if the dollar index were to go back to 88-90 levels. As I have been expecting bond yields have been leading they way and whenever they have been falling, markets have been correcting. If you were to see suddenly the bond markets also get seriously concerned, then at that point of time we could see this kind of serious correction or you just wait for the retail investors to come in which I don't think is going to happen before we get to 20,000.

Q: What leads the market higher from here? So far it's been banks the other heavy weights have been curiously quite. Do you think there is more headroom for banks to rally from here?

A: The large private sector banks are close to being fully valued and of course they can get overvalued which is what is happening, but I wouldn't put my money there. Some of the smaller public sector undertaking (PSU) banks are turning around and do look interesting.

It would have to be the PSU banks if at all. Of course some of the old generation private sector banks also look interesting. Right now what is happening is that any time a new CEO comes in from a foreign bank, the stock runs away. There are still some of these banks which are fairly solid and with good leadership can actually perform dramatically better.

I am actually pushed to really find large cap sectors which could lead the way. It could be some of the high beta names at this stage whether its real estate or whether its infrastructure. Some of the real estate stocks you could argue that still trade at a significant discount to their net asset value (NAVs) therefore there could be a pop back and the other is oil. If oil were to suddenly spike for some geopolitical reason, then of course you could see Reliance move up and the ONGC s of the world. Perhaps that could be it but I am not spending too much time worrying about what will take the market higher.