Markets have gained a tad bit since the start of the year. They are up a good 7 per cent higher, after hitting lows we seen in the month of March 2018. The rush to buy from domestic institutional investors continues, though the buying is now more restricted to large cap stocks.
Here are a few reasons, you should be selling Indian stocks and buying when markets are lower.
1) RBI likely to hike interest rates
The Reserve Bank of India is most likely to hike interest rates in June, as inflation remains worrisome. CPI inflation for the month of March 2018, was higher than expected at 4.58 per cent.
Crude oil has surged, while the rupee has fallen sharply, which is likely to further fuel inflation. When deposit interest rates rise, markets tend to react negatively, if the pace of hikes is quicker and faster.
All eyes would be on the MPC meet later this week, to see if interest rates have been hiked.
2) Markets remain expensive
Indian markets are known to be expensive, when compared to global peers and there is little doubt about that. At a trailing p/e of around 24 times, markets are no longer cheap. However, domestic institutions, led by mutual fund continue to chase stocks, even as they are flush with funds.
This may lead to some support. However, if the funds dry-up, we may see some pressure on stocks, if FPIs dump stocks. It is therefore prudent at the moment to stay away from stocks and buy only on dips.
3) Political headwinds
After the recent bye-elections, things are looking a lot more tougher for the Narendra Modi led BJP to retain power in 2019.
In fact, some analysts fear that we may even see a coalition government at the centre, if the opposition parties form a strong cohesive block, as we seen in the recent Kairana, Phulpur and Gorakhpur bye elections.
With NDA allies to sulking, it is not going to be a smooth passage for the Narendra modi government to retain power in 2019.
4) Bond yields are surging
Globally, bond yields are surging. In the US they have now crossed the 3 per cent levels. This is not good news for emerging stock markets like India, where Foreign Portfolio Investors may well dump stocks, to chase higher returns in the US.
Most vulnerable would be stocks that have a large Foreign Portfolio holding, including the likes of HDFC. If bond yields keep surging we would see some selling pressure in the Indian markets.
5) Macros deteriorating
With the rupee falling, we might see the current account deficit soaring. Also, a rally in crude oil prices, may put some pressure on the fiscal deficit. Rising inflation remains another area of concern.
All in all as things stand today, it looks a lot tougher on the macros front. June and July are going to be volatile months for the stock markets in India. If you have made some money, it would be best to book profits.