Nifty may top out at 5000, book profits: Analysts

Excerpts from Closing Bell on CNBC-TV18 Watch the full show » RELATED NEWS Highest closing for mkts since May 2008; metals, banks lead Nifty may hit 5200 on back of banking stocks: Religare 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 Nifty BSE | NSE 01/06/12 Are Mutual Funds betting on Nifty?

The run of the bulls continues on Dalal Street. Even as the Nifty nears the 5,000 mark after close to 16 months, the debate over liquidity, valuations and market momentum at these levels gets more vocal. Is a Nifty at 5,000 a little too-overvalued given visibility over corporate earnings is still not very clear? Is a correction overdue or will the burst of fund inflow to emerging markets like India give it further momentum?

Markets from hereon

C Jayaram, ED of Kotak Mahindra Bank, feels valuations are getting stretched and the Nifty may not have more momentum to continue its rally. As the market rallies further, the liquidity argument gets weaker, he told CNBC-TV18 in an interview. "For my money, we have pretty much reached close to the end of the road," Jayaram said.

Jayaram said that even as companies' earnings had improved in the previous quarter, it was more a result of the cost-cutting they exercised. He added that markets would be at current levels even by December due to a lack of any major positive news triggers. "Also, I cannot see any big negative surprise as well because in case there is correction there is enough buying interest at levels about 10% lower than this."

'Will see retail interest soon'

However, BSE Member Dipan Mehta said that as soon as the iconic 5,000 level on the Nifty is breached - it is less than a percent from current levels - it will enter an exuberant zone of frenzy. "Till now, we have soon hedge funds and traders buy quietly but once 5,000 is crossed, the retail money - the so-called dumb money - will start participating," Mehta said.

"That could be the level where you could see a spectacular move of 3-4% upwards which would take the Nifty to 5,200," he said. He, however, pointed out that global markets were being supportive to Indian indices too and if they start correcting, all bets would be off.

Retail buyers usually entered the market when they see a three-four week rally and that's when there is 'panic-buying', Mehta said. "If the market were to continue with the moves that it has for a three-four more trading sessions, you will see retail investors also getting their act in order and deploying and increasing their exposure to equities."

"Right now, it is more of the institutional buying," Mehta said.

Should you buy at these levels?

After creating higher bottoms, Mehta said the market was creating a top. "It is best that investor traders ride this particular boom because sooner or later, we will sense the market is topping out. Perhaps that could be the levels to look at liquidating or at least trying to improve the quality of the portfolio by buying defensives."

Mehta further said that a 10% correction after topping out could not be ruled out but "that would be business as usual".

"We are seeing that the market is getting to the higher-top-higher-bottom phase, which is really important."

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