Opportunities Abound, But Only For Those Who Grab Them

Doubts whether markets would recover after hitting a correction zone last week are proving short lived. The market is on liquidity-fueled injections and remains bullish in the weeks to come, though the pace of growth may slow a tad. The bellwether Nifty still has targets of around 8800 on its sights in the next few months.

Stock market corrections are short-lived. Hence, only those investors who are quick to press the buying button will be able to grab stocks at good prices. Other investors may be chasing the rises, rather than buying on dips.

Last week’s correction post the credit policy in which the RBI kept the status quo on interest rates proved one such opportunity. The markets cracked 1.1 percent, but quickly recovered following sustained inflows from foreign investors. In the end, the markets recovered enough to post modest gains of 0.26 per cent for last week.

The broader market trend continues to remain up as the markets slowly find its way to levels of 8800 or more. Needless to say, a surge in global liquidity is the only reason for the market’s bullishness. Foreign investors continue to pour money into the Indian markets purchasing stocks worth Rs 3524.9 crore.

But domestic investors seem to be pulling out from the market a bit too early. Last week, domestic investors sold stocks worth Rs 3427.8 crore, which was quickly absorbed by foreign investors.

As a result, company shareholdings are moving from Indian to foreign investors hands. If this continues, foreign investors will be holding a large chunk of the Indian markets in no time. And Indian investors will be letting go of one of the best compounding assets of the financial markets.

Negative debt yields in some European countries are driving more money into Indian markets and that is further driving ownership of Indian stocks. Negative interest rates may not sustain for a long time, but until then, monies will flow into other riskier assets such as equities, particularly emerging market equities.

Indian markets are not too expensive, particularly from historical bubble valuation zones. But they are not too cheap either. An earnings expansion is expected in the next one-two years. The sectors that were dragging the markets in the last two years such as metals, oil and gas, PSU banks are seeing an earnings recovery.

This should keep market valuations just below the bubble zone of 26+ times historically. Currently, valuations are hovering around the 23 levels.

Auto and agriculture related stocks continue to show great recovery. Escorts raced up 14 percent last week on better monsoons and improving earnings outlook. Maruti continues to zip ahead due to better volume growth.

Stock market inflows are driving liquid and frontline stocks higher. Besides, foreign investors have upped their stakes in quite a few counters over the past three-four quarters. The markets are not too worried about individual sector valuations at this point, though auto and consumer stocks are looking quite expensive. Despite this, these sectors continue to defy gravity.

Corrections are proving to be short-lived in this liquidity fuelled rally. Investors looking for entry points in this market have to be quick in buying the dips. Opportunities are plenty, but only for those who take them.