Overvalued stocks can attract profit taking


Benchmark Nifty is expected to progress further and reach new highs during the trading week starting on Monday

With clarity emerging on the issue of reducing bond purchases by the U.S. Federal Reserve, which will begin by the end of the current 2021 timeline, and U.S. interest rates only rising in 2023, the party on the national stock market is expected to continue for some time. The US Fed’s announcement at the Jackson Hole Symposium and the release of important economic indicators next week will keep sentiment in Indian markets high next week. Benchmark Nifty is expected to progress further and reach new highs during the trading week starting Monday.

After trading in a narrow range, in a state of confusion pending the US Fed’s announcement on Friday night, Nifty 50 finished Friday with a weekly gain of 1.55% to 16,705.20.

The Indian stock market has outperformed significantly in the Emerging Markets (EM) category and its outperformance will continue for a variety of reasons.

Indian markets are driven, at least for now, by retail investors, who have become market players, and domestic institutional investors (DII) also play a supporting role.

Dr VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said: “We don’t know how long this retail exuberance will last. Current valuations offer no margin of safety. Perhaps this is the reason that REITs have been constant sellers in the cash market for several days now. At the same time, they don’t want to lose market momentum since India is by far the one that outperforms in emerging markets ”.

Foreign portfolio investment in August (through August 27) reached a mere Rs 986 crore. This includes investment in the primary market. If the REIT investment in the primary market is excluded, the total REIT investment for August will be negative. Although REITs are ‘smart money’, they are no longer market drivers in India.

Either way, REITs are unlikely to incur a lot of new money in the face of these strained stock valuations. However, they have increased their exposure to the Indian debt market, with the yield on Indian debt securities falling from 6.10% to 6.24% recently. For them, an Indian debt market provides a favorable environment for investment, as yields on US bonds are currently in a range of 1.10 to 1.20% and the USD-INR exchange rate is also in. their favor. It can be noted here that REITs significantly reduced their exposure to the Indian debt market last year when they invested over $ 36 billion in Indian stocks.

The Fed having clearly announced the start of tapering, we can locally assume that the rally is far from over. However, corrections to the ascent cannot be ruled out.

Samco Securities, in a research note, said: “The selloff we have seen recently in the broader market was not the ‘start of a crash’ but rather a ‘healthy correction in a larger bull market. large”.

“Investors should accumulate quality companies on the lows. With the market setting new highs every week, this doesn’t appear to be the last of the Greens that we expect to see, ”he said.

Vinod Nair, head of research at Geojit Financial Services, estimated that market movement over the coming week will be influenced by the release of key economic data. Over the coming week, the market expects the release of key economic data such as the first quarter GDP growth rate and the manufacturing and services PMI. “First quarter GDP is expected to show strong growth due to a weak base and a pickup in economic activity towards the end of the quarter,” Nair said.

While the threat of the pandemic in a third wave remains a powerful disruptor, the intensity with which it can now strike is in doubt with the elaborate preparations already undertaken by most governments, said Joseph Thomas, Head of Research, Emkay Wealth Management.

Nifty50 closed on a positive note for the week, but continued to trade in the previous week’s candle range. During the day he created a series of hanging man’s spinning tops and candlesticks that are signs of indecision.

“We can expect a slight dip towards the near-term averages, but the main uptrend will be intact as long as Nifty trades above 16,250 levels. Any breakout below 16,360 support levels will signal weakness. Short-term Profit recognition can happen in some overvalued stocks, but investing in high quality companies in stages would be a smart strategy, ”the Samco Securities research note said.


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