Markets are up and midcaps are doing pretty well. Even though the retail participation is still less, there is some cheer in the market with the current rally. I am sure most of you would be happy now that most of our investments (specially mid caps) are doing good. Market is in a cheerful mood and right from TV anchors to analysts are saying that nifty next target is 6700 and so on and so forth. When market starts going up it catches lot of attention and it becomes main news thereby attracting lot of people who stayed out for most of the time as the market was not giving any returns.
For those that are thinking of making an entry into stock market right now I would like to caution them about timing their entry.If you see the reasons for market rally, it is primarily based on the factors given below
a) Pre election rally with the market hoping that Modi will win (based on surveys)
b) CAD has come down
c) FIIs buying (USD 1 billion in last few weeks)
d) Ukraine uncertainty resolution etc.etc.
If you closely notice, there is nothing that is connected with the economy or businesses fundamentals improving. Inflation continues to be high and hurting consumption. NPAs continue to haunt banks with most of them having capital adequacy issues. Capital intensive companies struggle to make ends meet due to higher interest rates and higher replacement cost due to inflation.
Most of the current year expenditure has been moved to next year (for next govt to tackle) by the current FM to window dress the deficit number and make the numbers look pretty. A pig with a lip stick is still a pig.
Given all this, we should be cautious and careful and not to get carried away now. Market is not yet overvalued but most of the quality stocks are very fairly valued. This irrational exuberance could continue for longer period at times. But when others are greedy we need to be fearful. Avoid temptation to jump into the market now and buy anything that looks cheap. In my opinion most of good quality stocks are very fairly valued which makes it difficult to find any bargains. If this run continues, even low quality stocks would get valued higher which makes it very dangerous for those that invest in them.
What can we do now?
This is the time to wash off some previous sins of ours and do some housekeeping. Look into your portfolio and determine stocks that you wanted to get rid off but could not because of big losses. If they have also been lifted by this small tide, sell those and get rid of them even if you are at a loss.
I have lightened up my portfolio of BHEL to make use of the opportunity of slightly higher prices it is currently trading at. Sell partially (10 to 20% ) and hold the rest.
Other than that, I would like to do my favorite thing and that is to be lazy and sit tight on other investments. Some of them have a long way to go. I will keep my eyes open for any mispriced opportunities though as they may present themselves even in this kind of markets.
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