So far in 2016, the markets are at the best levels we have seen since the start of the year.
Returns have been fantastic, since Jan-Feb and as markets keep scaling highs, analysts and those in the markets, will continue to show you the moon. At some stage, you should stop, because when you get into the frenzy, you are buying at higher prices and a sudden collapse in prices, may take years to recover.
Here is why you should stay quiet and not get into the buying mode.
Valuations are making little sense
The trailing p/e for the Sensex companies is now at 22 times. This is very high and not even where the average p/es have been in the past. In fact, if the p/e for the Sensex reaches around 17 times, it would be near the long term average and it would make sense to buy at that time. Right now, markets are overvalued.
Highest levels of the year
The markets near the 29,000 points mark, are trading at the highest levels for the year 2016. We all know what happens when you buy at the highest level - we crib later, that we are sitting on losses. Buying low and selling high, is the only way to make money. The Sensex in Feb had dipped to as low as 24,000 levels and since has recovered almost 5,000 points.
Earnings season continues to be poor
The earnings season of the previous quarter ending June 30, 2016 was poor. Banking NPAs showed no signs of improvement and numbers from IT companies were awful. We can't expect the metal sector to lead the rally on the bourses. Unless, numbers improve dramatically, there is no way the market can sustain such high levels.
Unlikely to see aggressive interest rate cuts
We might have one more interest rate cut by the Reserve Bank of India in Oct and thereafter we might see a big pause. It may be highly possible that it could be the last of the easing measures, as inflation continues to be a big risk.
US Fed interest rate hike
In all probability we will see an interest rate hike by the US Federal Reserve in Dec, 2016. If the Fed takes more aggressive stance next year, it is not good for equity markets.
When the US Fed hikes interest rates, investors tend to move money from risky assets to safe government debt.
US Presidential Elections
There could be some risk for the markets, if Republican nominee, Donald Trump is elected as the next President of the United States.
His policies on protecting American jobs, could put some pressure on IT stocks. In any case, it could be a risk to the markets.