All-Time Highs Coming Soon

Sustained buying by domestic and foreign investors is driving markets to a new all-time high in the coming weeks. Stocks are just about a percent or two away from a new high, and going by the momentum, markets could scale the 9,100-mark sooner, rather than later.

As compared to the past, markets are not in the overheated zone, although valuations are stretching. In December 2007, stocks quoted at high of 27+ times earnings. But back then earnings had peaked out.

This time stocks are quoting at a high PE of 23+ times earnings. However, the prospects of an earnings expansion is expected to drive PEs lower in the coming months. Besides, this time stocks are expanding due to a secular and steadier growth in earnings - and this does warrant a broader market re-rating.

Foreign investors are pouring in the moolah. Last week saw a minor and marginal profit booking by the foreign investors, but expect the occasional change in stance. As long as there is no sustained selling, Indian markets should be in good shape. And last week's FII purchase of Rs 1479 is pointing a continuation of buying orders.

Markets are discounting a September US Fed rate hike is being ruled out. And even if the Fed raises rates some time in December, foreign investors will need an outlet to park their money - and India is being increasingly considered a safe haven market.

Stocks across the board are surging to new highs. Businesses are doing well, and orders are trickling in and public capital expenditure is leading the way. All this is seeing some of the better and well-entrenched names pull ahead in the market.

Prominent names that were being looked as laggards till recently are leading from the front. Axis Bank surged to its 52-week high, which till some time back was meandering lower. Auto company Bajaj Auto surged to its 52-week high as a pick-up in rural demand is expected. This stock, too, was dragging its feet sometime back.

Even the usual market leaders are scaling new highs. Asian Paints hit a 52-week high. HDFC, HDFC Bank, Hero Motocorp are among other companies surging near their 52-week highs. Consumption is the theme that the markets must keep an eye out at lower levels. Any correction in the market will make these stocks attractive buys.

In the coming days, watch the banking counters. Frontline banks have yet to get the valuation discounting they deserve. PSU banks particularly ought to get a much higher earnings multiple. A few small brokerages are also going inexpensive. Chemicals are another sector that is trending higher.

Sugar has corrected in the recent past, but prices will once again begin to rise with the festive season around the corner. Global sugar markets are staring at dwindling sugar outputs, hence a small exposure to this sector is warranted.

If you have been sitting on the fence, it's time to make small purchases even at these high prices. Savvy investors are buying in big lump-sums whenever there is a correction. However, investors should look at making purchases in the markets all the time much like an SIP. Over time, this continues to be one of the best ways to build a meaningful portfolio.