The markets at this juncture are moving in tandem with global markets, where the S&P 500 and the Dow Jones have hit record highs.
The markets may see some selling pressure later in the week due to GDP numbers, which are expected to be very tepid.
In any case, the sharp run-up in the markets is largely on account of a few select stocks including the HDFC twins and Reliance Industries. The broader markets continue to be poorly valued.
Sell on rallies
In case if you have made money, it would be a good idea to sell on every rally. The markets seem overpriced at the current levels and there could also be a probability of profit booking that emerges at higher levels.
In any case, the Sensex one year forward p/e is close to 20 times, which makes the markets extremely expensive. Growth rates continue to be poor and most investors expect the economy to continue to slow down in the next few quarters.
The government too may miss its fiscal deficit targets and with expenditure likely to be curtailed, there is a high possibility that we could see growth slow further.
Markets flush with liquidity
At the moments liquidity across the globe, seems to be pushing global indices higher. Low interest rates and low inflation are other factors contributing to the sharp rally in stocks. It is likely that we may see a couple of hundred points of an uptick as well from here on the Nifty. However, as markets continue to gain momentum, we would see the risk-reward ratio diminishing significantly.
In case you are investing, it is best to stick to high-quality names, that are likely to show growth potential in the coming quarters. However, some of these counters have become expensive and you would have to really do some research to identify stocks that are not too expensive at these levels.