Should you join the market rally at a historic peak?

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Should you join the market rally at a historic peak?
On Monday the Sensex and the Nifty once again closed at record levels. Many analysts were quick to increase their Sensex and Nifty targets as they always do.

But, markets more often than not tend to defy the broad consensus. So, should you invest in the market at current levels?

The answer maybe only a small amount, as the risk to reward is not favourable anymore.

Until a few weeks ago, there were certain pockets like banks, infrastructure and capital goods that were looking cheap. Now even that pocket is looking a little expensive, though one maybe inclined to believe that PSU banks may still be a little cheap.

The one reason why markets are rallying is the sheer money power from Foreign Institutional Investors (FIIs). They have now net bought in Indian equities for 16 straight trading days. On Monday they net bought again in the equity markets to the tune of Rs 1253 crores. There has been a mad craze from FIIs to buy into Indian equities, thanks to a gaining rupee and falling current account deficit.

How far they will keep buying is difficult to tell. This time, they are buying on the gaining rupee as well as on hopes of a Narendra Modi led NDA government at the centre. If for some reason opinion poll go wrong and there is no NDA led government at the centre, you never know what the bottom would be for the Sensex. On two occasions in the past in 2004 and 2009 the opinion polls were proven horribly wrong.

Also, in the middle of March we have the US Federal Reserve meeting and there is likely to be more QE3 tapering on the cards. So brace yourselves for some more volatility.

Clearly, it's difficult to predict where the market could head. But, one thing is certain it has rallied and hit historic peaks. If you invest at the current levels, do not expect substantial returns. It's best to invest a small amount, so you do not feel left out if there is further upside.

Read more about: sensex, narendra modi, psu banks
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