Markets Look Nervous, Expect Valuation Correction Soon, Say Analysts
The benchmark stock indices erased early gains and declined sharply to snap a six-session rally on Wednesday.
With the equity markets looking "exhausted", analysts advise caution and expect a value correction soon.
“Markets look exhausted and tired,” said Jai Bala, founder and chief market technician at Cashthechaos.
If the January lows of Bank Nifty are removed, then it will assure large traction in the markets, he said.
Bala is bullish about UltraTech Cement Ltd. and expects it to reach a fresh all-time high near 11,000-11,500, while he is bearish about Titan Co.
The markets look nervous, said Sudip Bandyopadhyay, group chairman at Inditrade Capital Ltd. “A valuation correction is required for defence and public sector enterprises,” he said.
Bandyopadhyay highlighted that these segments are performing well by gaining a significant order and have great potential, moving ahead. But he expects some sort of time correction as the valuations have reached unrealistic levels.
“There is general election coming up but beyond that there are not many fresh triggers at this stage, hence, a bit of nervousness and profit-booking is seen,” he said.
The benchmark stock indices erased early gains and declined sharply to snap a six-session rally on Wednesday, as most sectors—especially media and IT—dragged.
The S&P BSE Sensex closed 434.31 points, or 0.59%, lower at 72,623.09, while the NSE Nifty 50 declined 141.90 points, or 0.64%, to end at 22,055.05.
The Indian market is facing stiff resistance at higher levels, according to Vinod Nair, head of research at Geojit Financial Services. "The valuation of a broader index is at a significant premium, leading to an unfavourable risk-reward, which influences investors to book profits."
According to Bandyopadhyay, the U.S. will not experience any interest rate cuts before June this year. This has led to some sort of “conservatism creeping in”, he said.
“Foreign institutional investors look guarded. They are consistently selling in Indian markets. They are bringing in money in India, but that’s going in bonds. As far as equity is concerned, they are selling.”
