Markets In Frenzy, Eye Profit Booking Opportunities

A frenzied buying has gripped the domestic market despite an overhang of the Brexit vote. Markets recovered much too quickly after the Brexit vote, and (you could say) the enthusiasm rolled over to the global markets, which started to recover a few days later. Global markets have nearly wiped up Brexit losses, while the Indian markets are comfortably perched over the Brexit peak.

IPOs are seeing investors queue up in record numbers. The recent Rs 400 cr Quess Corp IPO saw demand worth Rs 50,000 cr, over 12 times. One million investors applied for the stock.

Last week, the bellwether BSE Sensex surged 2.83 percent, and surging higher than its highs before the Brexit vote. And given that investors are building steady positions, the uptick in the markets could take it to new peaks.

Dud stocks have started to participate in the rally. A rising tide carries all boats, and this bull market is reflecting the adage. In the next few months, investors should take the opportunity to clean-up their portfolios of dud stocks. In normal times, volumes are thin in such counters. But bullishness drives up volumes providing a great exit opportunity.

Meanwhile, across the world the liquidity tap is being kept open to counter negative sentiments. And as long as cash is flowing into the global economy, stock markets will see good days.

Indian markets, however, are looking beyond liquidity injections and tracking the progress of the monsoons and upcoming quarterly results. The rainfall deficiency is getting covered up. Tailwinds of a good monsoon are expected to spur rural demand. In turn, demand for two-wheelers, consumer durables, autos, and other consumer goods should gather pace. Both urban and rural consumption are driving sectors like housing finance, banking, non-banking financial services.

A pick up in the broader economy is placing select engineering, construction and infrastructure companies on the buying radar of investors.

Oil is in the sweet ‘goldilocks’ spot for India at $50 per barrel where it does not affect the import bill, at the same time, keeps the global markets stable. Meanwhile, oil and gas companies are seeing momentum build up as demand rises.

In the next few weeks, watch the earnings. Unless earnings disappoint in a big way, markets are likely to tick upwards. A widely watched number during the upcoming results season is going to be a pick-up in top line. A recovery will signal that the economic uptick is consolidating and building up. Low interest rates and an increase in government spending are key factors attributed to the economic recovery.

In this frenzy, avoid throwing caution to the winds. Investors might be tempted to buy for the fear of missing out the rally. But nothing keeps going up forever, thus markets will correct. Too much optimism is being built in now. Hence, keep an eye out for value, and a tight focus on buying the dips. At higher levels, profit booking in some mid-cap counters seeing too much froth won’t be such a bad idea.