Time To Cut Exposure To Stock Markets As Valuations Get Stretched

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    If you observe the trend of the last few days, the domestic institutions have been selling in the cash markets, data released by the stock exchanges show. These are one of the shrewdest of investors and rightly so. A report recently reveals that two top mutual fund schemes have cut exposure to equities and have either raised cash limits or are investing in debt. This is all because they believe Indian stock valuations as having reached very high limits.

    1) One way journey from Union Budget day

    It has been a one side uptrend since the Union Budget day, as the government did not impose any capital gains on shares. The rally has taken the index past the 28,000 and then past the 29,000 levels. At these levels it maybe time exercise caution. The BSE Sensex p/e is a staggering 22 times, against its long term average of 17 times, clearly showing markets are overheated. If you are holding shares it maybe the right time to cut exposure. On the other hand if you are looking to buy you should wait.

    2) Buy in select pockets only

    In this market there are only select pocket of shares that have become a tad cheaper. For example, pharma stocks are a little cheaper now then they were many months before. This is because of US FDA worry. However, this maybe a slightly risky sector to invest in at the moment. One is not sure how far the US FDA would come down on Indian pharma companies for quality issues. Hence, if you are looking to buy this pocket it could be a good thing to wait for the US FDA dust to settle.

    3) What about IT?

    IT stocks have been also hit over the H1B Visa issues in the US and to compound miseries the rupee has been gaining strength against the US dollar. So taking a bet on IT stocks would also be a little risky. All in all it would be advisable to stay away from investment in these stocks for the time being at least. It is better to wait for results from some of the IT companies before investing.

    4) Banking is now over priced

    On the other hand, the banking sector is looking over valued at the moment, unless there is a definite improvement in the non performing assets. This at the moment does not seem to be happening. The problem right now is that interest rates are also at a low, which means that there are too many options for investors. So, if you are buying it would be good to wait and watch for sometime before entering into the markets. It is just time to exercise caution in the markets and wait before buying.

    5) Disclaimer

    This article is strictly for informational purposes only. It is not a solicitation to buy, sell in precious metal products, commodities, securities or other financial instruments. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author of this article do not accept culpability for losses and/or damages arising based on information in this article.

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