The Sensex earlier this week hit a new record high, but, has fallen a tad bit since. With near record highs on the Sensex, it maybe time to stay away. Let us examine some reasons to stay away from the markets.
Defies the basis logic of "buying at low levels" and "selling at higher levels"
To make money in stocks, you need to buy low and sell at higher levels. With the markets at peak, the risk reward prospects starts diminishing. Also, a downside risk leaves investors vulnerable to the possibility of a big crash in stocks and capital destruction. Investors should therefore be careful and tread with caution.
Earnings continues to remain poor
Earnings so far have not been great. Markets are slaves to earnings and unless earnings improve, any sharp rise in the stock markets would lead the p/e expansion of the Sensex, which automatically makes the markets more expensive. Today, consumer demand is just not happening, be it in auto or elsewhere. Take the simple case of Titan Industries, where the company has reduced its sales guidance considerably. Demand has slowed considerably in the economy with job losses.
Global cues remain vulnerable
From the problems relating to the possibility of impeachment of US President Donald Trump and US-China trade disputes, the markets look vulnerable to a whole lot of things. It is also important to understand that in the US, the markets have hit a historic high and hence, there is also a possibility of some downward pressure coming into the picture.
Interest rate cut cycle in India to end
In all probability we might see an end to the interest rate cut cycle in India. Next month we might see probably a last interest rate cut from the Reserve Bank of India. When interest rates fall, investors generally tend to move money from debt to equity.
We do not anticipate more than one more interest rate cut going forward.
Book profits partially
It may also be a good time to book profits as well, especially in shares that have delivered good returns. Investors should however only book profits partially just in case the markets run-up a little more. However, we do not anticipate a big run in the markets from here on.
Even if investors are buying it is important to stick to high quality names, otherwise you may end-up losing money. When the markets are trading at peak levels, the most important thing is to avoid being greedy on hopes of a further sharp rally.