Markets have been extremely volatile last week, with stocks dropping sharply as compared to the previous week. It is unlikely that markets will go-up in a hurry. Here are 6 reasons to buy stocks later and not be in a hurry.
Bond yields in the US are rising
Bond yields in the US have spiked in the last few days, since the election of Donald Trump as the US President. It is highly likely that we may see a further spike, as investors continue to worry about inflationary pressures in the US, after Trump's election. This could lead to a hike in interest rates in the US and capital outflows from the Indian markets. In fact, on Friday, we saw Foreign Portfolio Investors selling a staggering Rs 1,400 crores in the Indian market in the cash segment.
Valuations are expensive
Valuations of Indian stocks are not very cheap by any stretch of imagination. The Sensex is trading at 20 times, one year trailing EPS. This is as against the average of 17 times. Probably, we are a good 10 per cent ahead in terms of valuations. Unless, the markets drop, there is no way that investors would earn decent money.
Earnings have been bad
The earnings season has not been too good. For the markets to fly, earnings season has to catch-up. Sadly, there is not a single pocket, except sugar that is reporting good numbers. From IT to banking all companies have reported numbers that are below expectations. Infosys TCS, ICICI Bank, ITC and others have all disappointed with their numbers.
Hike in interest rates in the US
It is highly likely that there would be an interest rate hike in the US. In fact, with the US Presidential elections now behind, the US Fed would hike interest rates. When that happens investors dump shares and chase higher bond yields. The first casualty would be emerging market stocks, including that of India.
Demonetization to have its impact
The withdrawal of Rs 500 and Rs 1,000 notes is likely to have an impact on the markets at least in the short term, though in the long term, the withdrawal is a good move.
The markets are looking technically weak and it is highly likely that we may see a down slide to levels of 8,000 points on the Nifty. It is better to sit on cash and buy if we fall below the 8,000 levels. At these levels the risk to reward ratio for the markets would be good.