Ride the Euphoric Wave
When it comes to investing in the equities market there is a self-evident truth in Bob Farrell’s famous investment rules: “When all experts agree, something else tends to happen.” This has turned out to be totally right for the domestic markets because when the market experts were busy talking about the euphoria and bubble phase in the stock markets, the markets ignored everything and continued to record fresh highs one day after another! Interestingly, Nifty followed the same template that it has been following for some time now, which is of sharp up-move after a period of consolidation. As on Wednesday, Nifty touched a new milestone of 17,500 following six days of sideways consolidation period and it did not stop here.
In fact, it witnessed a follow-through move on Thursday and surpassed yet another milestone of 17,600 while BSE Sensex conquered the important landmark of 59,000. The mood of the market was so buoyant that all the sectors were seen participating in the rally. On a WTD basis, Nifty Media is right at the top as it jumped 12.18 per cent courtesy strong performance by the stock of Zee Entertainment Enterprises Limited (ZEEL), which was in news as Invesco Developing Markets Fund and OFI Global China Fund LLC, one of the largest shareholders of the company representing an aggregate 17.88 per cent of the company’s paid-up share capital that carries the right of voting, called for an extraordinary general meeting (EGM) to remove Punit Goenka from the post of the director of the company.
Another sector which surprised everyone this week by its ferocious move was Nifty PSU Bank. The Nifty PSU Bank index is up by 8.16 per cent on WTD basis and with this strong up-move it is challenging the swing highs which were registered in the early part of August. And the third top sectoral performance was by Nifty IT, which has been the Pied Piper that has been in the lead since the last 15-16 months and continues to lend its support to the index. Nifty IT has gained nearly 3 per cent and marked a fresh all-time high of 36,310.75 on Thursday. The Nifty IT index has gained nearly 230 per cent from the March 2020 lows.
Now, if you are an investor, looking at the phenomenal gains delivered by the IT index from its March lows, you would be wondering if things are getting overdone and whether this is the right time to book profits from this sector. We believe IT is going through some kind of tectonic shift and because we live with prefixed notions we tend to think in a manner that large-cap IT companies should trade at 18-22 times and the mid-cap IT companies should trade anywhere between 14-18 times. But now the landscape has completely changed for the IT companies.
We have seen many IT companies revising their guidance upwards. Hence, one should view these stocks from a new vision and not from the same old prefixed perception. One more sector which is commanding attention is Bank Nifty. It is up by 2.68 per cent on WTD basis. Moreover, it has hit a fresh all-time high level of 37,720.15 on Thursday. Once it sustains above the level of 37,700 on a closing basis, it is likely to test the level of 38,300 in the near term. Now here is a million-dollar question to answer: How does one approach the market at this stage since there has been a substantial rally and the valuation factors have been overlooked?
Despite the fact that the high frequency indicators are pointing at swift recovery in economy, there should be a point when you can sit back and say it’s time to book profits from the markets. At this juncture, only the markets can answer this question. So, listen to the markets which, at the moment, are not showing any signs of reversal. For traders and investors, the level of 17,250 should be closely monitored as any close below this level could lead to some sort of panic in the markets. Therefore, keep monitoring this level and till then ride you can ride the winners to create wealth. That is the simple mantra!
