Weekly Market Recap
It was quite a low-pitched week for the market. Though major indices gradually remained drifted lower through-out the week, but the net fall is not over a percentage. Despite, there were group of stocks that continued to rise to new highs but on less volume. Eventually, after a long time it was a confined week with quite less volatility.
In the week gone by the benchmark SENSEX lost 440 points, or .83% to close at 52484, similarly, NIFTY shed 138 points, or .87% to settle at 15722. While BANKNIFTY again underperformed with a loss of 1.57%.
Current Outlook
The momentum rule everything. It has regained its strength last week appeared to have diminished once again this week, but it is too early to say that it has lost it strength completely. NIFTY is still in the vicinity of all-time high, small pull back or few days of consolidation can further produce a meteoric rise which is likely given the fact that market is not willing to reverse in a hurry. There is myriad of possibilities from here on and market is testing paramount of patience. Clearly, it is not a shorting market unless we get a veritable evidence neither it is quite prudent to have large fresh long positions. It is one of those market when technical setups and other market conditions are suggesting a bifurcating picture. Negative divergences on long-term weekly and monthly charts among indicators imply some corrective action or sideways movement while conditions like alleviating VIX infer less uncertainty about the future which ultimately support the higher prices going forward. However, low VIX also indicates cardinal top is awfully close, currently VIX is at 12.09. Historically, 10 is the reading where market normally peak out.
The current P/E of NIFTY is 28.33, it had reached 41.97 in February which perhaps the highest in history. There are two factors that can cause the P/E ratio to rise: (1) rising price and/or (2) falling earnings. Currently, prices and earnings are rising, but prices are rising much faster. The excess of overvalued markets can persist for years and is not a condition that requires immediate correction. Overvaluation is, however, a condition that can exacerbate declines because there is no intrinsic “value” present to incentivize potential buyers. Overvaluation doesn’t matter . . . until it does. Hence, in nutshell the outlook seems to be cautiously positive.
Conclusion
This is the most overvalued market ever. While it doesn’t necessary require immediate correction, the amount of excess has got to be a major concern. But, who cares? Hence, be patient.
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Be patient…; Be a Savvy Investor..!!
Pankaj