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Budget 2018
Jan 10, 2018 08:49 AM IST | Source: Moneycontrol.com

Should investors wait for a 3-5% correction before putting fresh money ahead of Budget?

If the dip happens, investors would welcome it with both hands but it is difficult to time markets. Hence, a staggered approach of investing should be followed.

Kshitij Anand @kshanand

The bulls remained in control of Indian markets so far in the month of January with benchmark indices climbing to record highs just ahead of the Budget 2018.

The next crucial question in the mind of investors is -- will the momentum continue and is this the right time to deploy fresh capital?

Moneycontrol spoke to analysts tracking D-Street who confirmed that what we are witnessing is a pre-budget rally and any fresh capital should be deployed on dips or at least in a phased manner.

The correction which everyone is eyeing for might not come ahead of Budget and even if it comes, it will be quickly bought into leaving most on the sidelines.

“Over the last 12-18 months, we have not seen any major corrections owing to strong domestic liquidity and raging global bull markets,” JK Jain, head of equity research at Karvy Stock Broking told Moneycontrol.

“Long-term participants may deploy 50 percent of the investable amounts at current levels and any major shocks or corrections of around 7-10 percent into the markets can be utilized to deploy the rest amounts,” he said.

Indian market is discounting most of the negative news flow such as a rise in inflation, rising bond yields, crude oil prices which are inching towards USD 70/bbl, and lingering concerns over fiscal deficit.

Even the derivative data points towards bullishness atleast in the near term. Open Interest (OI) breakouts are the most interesting sweet-spots to be traded. The strike of 10,600 had the nearest highest congestion before 11,000 and with a move in Nifty above that, a lot of shifts are expected.

“Smart money has already been sitting firmly at 11,000 for a long time and could be a probable upper range for January expiry. India VIX despite the fact of an event and result season has been quoting lower than normal. VIX has a negative correlation to Nifty and it seems to be respecting the fact that Bulls are in control,” Shubham Agarwal, CEO & Head of Research at Quantsapp Private Limited.

“A wise way to approach this Budget season would be to build positions pre-budget and deploy a hedge to cover uncertainty of the event. This may lead to a slight compromise to the return but on a risk-adjusted basis is still lucrative. The level of 10,450-10,400 now becomes a strong support for the index with upside open up to 11,000-11,200,” he said.

Should investors wait for a dip?

If the dip happens, investors would welcome it with both hands but it is difficult to time markets. Hence, a staggered approach of investing should be followed.

“We prefer a pyramiding approach, continued to add, albeit, slowly to positions that have been built earlier. However, waiting for a 3-5 percent dip may be a folly, if it were to happen in the next 30 days or so, as it should ideally mark a break in momentum, and hence, it would be prudent to play the strength, rather than waiting for weakness,” Anand James, Chief Market Strategist at Geojit Financial Services told Moneycontrol.

“However, with earnings beginning to flow in across the globe, it would not be surprising to bump into pockets of volatility, but 11,000 in Nifty should continue to act as a lighthouse for the time being,” he said.

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