January 2021 was a month of record highs. Sensex scaled 50K for the first time, and Nifty50 at a kissing distance to touch 15K. Budget 2021 got a big thumbs-up from the stock market, with Sensex jumping record 5% up, on a single trading day.
The Union Budget was tilted more in support of the Growth, even at the cost of higher borrowing. Government increased focus on infrastructure and no Tax rate hikes (as expected) cheered the market. The Budget is aimed at supporting employment and businesses by spending, rather than worrying about near-term fiscal position. Economic environment is becoming more conducive for a business cycle recovery. We continue to remain positive on sectors which are closely linked to the economy like Banks, Capital Goods, Infrastructure, Metals/Mining etc.
We believe the current market rally may continue till the below mentioned triggers play out: a) US acknowledging inflation & in conclusion pausing stimulus, b) US Treasury Yields reaching 2%, & c) Crude Oil touching 60-65$/bbl, which may lead to high inflation.
By Historical standards, Indian markets are highly overvalued. The ratio of Sensex share prices to company earnings is now over 34, against under 20 historically. China’s ratio today is just 17.5%. Sensex is bloated by global flood of central bank money. The flood will ebb one day.
It’s recommended to book profits and park the same in Debt funds. Idea of this parking is to bring a cushion to this liquidity driven market, which will taper at some time. Even if these cues do not sustain, one can look at moving back to equities, at an appropriate opportunity.
Also, what is highly recommended, is not to be a Robinhood in these markets, but keep in touch with your trusted advisor and his/ her guidance 😉.
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