The Indian market hit a fresh record high for the third straight day in a row on Tuesday which pushed 34,400 for the first time but it is also time for investors to tread with caution.
The eternal bull on D-Street, Porinju Veliyath of Equity Intelligence India said that Indian market is unlikely to see a bear market anytime soon. The first time investors could play it safe by avoiding ‘too hot’ stocks, Porinju said in a tweet on Monday.
There is no bear market anytime soon; however, newbies could play it safer avoiding 'too hot' stocks after an unusual run-up. No hurry, keep your eyes & ears open #BePriceSensitive— Porinju Veliyath (@porinju) January 8, 2018
The S&P BSE Mid and Smallcap indices which rose 40-50 percent in the calendar year 2017 produced many multibagger stocks, but most of them have rallied on the back of strong global and domestic liquidity.
The rising tide of liquidity took many small and midcap stocks beyond their historical averages even though the earnings have stayed flat or below average. One prime reason for the jump in the multiple is the fact that huge amount of liquidity is chasing few
stocks.
“The driver for the equity market is the consistent DII flow / MF flow that is driving the equity market. We feel there is a huge amount of money that is chasing a limited spectrum of stocks,” Vivek Gupta, MD GEPL Capital told Moneycontrol.
The S&P BSE Midcap Index’s trailing price to earnings (P/E) ratio — a widely watched valuation measure — on Monday’s close stood at 48 times while the S&P BSE Sensex was trading at a P/E of 25 times. The gap was 23 times.
CLSA in a recent note said that Indian Midcap space looks expensive. The global investment bank expects earnings growth visibility to offset multiples normalisation in 2018.
SEBI new rules on MFs schemes should provide sustained liquidity. Buying in midcaps could come at the cost of large and small caps.
CLSA advise traders a cautious approach with a preference for structural long-term themes. It is positive on Building Materials, Healthcare sector, govt policy beneficiaries such as textiles, and fertilisers.
Top picks from the CLSA include companies like Arvind, Apollo Hospitals, Crompton, Century Plyboard, Godrej Properties, Jubilant and Varun Beverages.
Top selling ideas include companies like Pidilite Industries, Havells India, and Colgate Palmolive India.
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