Market Note 2024
As the party on the D-Street continues with the primary indices marking the beginning of a new calendar year with new all-time highs making the Indian Equity Market the best place to be among the global peers, we are relatively switching our stance from being aggressively bullish to bullish – neutral on the Indian Indices and thereby the broader markets. While the nation is gearing up for some landmark events over the next 2 quarters and the optimism is high like never before, we should ensure that we do not get carried away with the pumping adrenaline especially the way Indian markets have displayed strength over the last couple of quarters. And most importantly not to become complacent. We must be receptive to any danger signs market may subtly display during its march forward.
While we should give the market its due credit for having delivered stellar returns since pandemic low, it is also important to note that it is not in the nature of the markets to be kind and provide sublime returns within a short and yet continued period without extracting its due pound of flesh through its web called corrections – both in terms of price correction and time correction. And the levels that we are trading at make a good platform for one, for some of the following reasons.
1. Broad market PE are at elevated levels but not necessarily in danger zone.
2. Breadth Index and primary momentum indicators are in overbought zone and are showing reasonable divergence which usually serves as a leading indicator to gauge strength.
3. Overvalued stock prices in mid-cap and small-cap space.
4. Long drawn consolidation followed by subtle signs of USD strengthening against INR.
One may argue that there are more positive than negative news flow in the markets for it to stay buoyant and even inch higher, and we to a certain extent agree with this thought process. However, it is imperative for the markets to provide a meaningful correction which is more often termed as healthy for the markets. But get caught on the wrong foot, the very same healthy correction can be distasteful as they tend to eat away most of the gains made during a trending market.
Summary : This Market note should not be construed as a warning sign that markets have peaked out and we will see a slide down right from the opening bell from the next trading session, but as an input before going aggressively long at the elevated levels that we are trading at present. High importance should be given to position sizing and not be too aggressive or take leveraged positions and be ready to take the hard call of making an exit if markets show a reversal sign. It is also worth noting that as we move closer to the election dates, volatility will be high, and movement of the markets can sometimes be too hard to handle. One should focus more on protecting profits made so far either by way of portfolio hedging or downsizing the positions by booking profits (moving profits from unrealised to realised) to the extent one is comfortable holding the position (exiting portfolio in full may not be the best idea as re-entry would become a challenge) even in case the markets correct by double digit. Of course, the profits booked, and the capital released can be parked in a short-term debt instrument until the time market throws a buy back opportunity. We have no doubt in our mind that the Indian Equity Markets are poised for a decadal bull run with the magnitude of developments and money flow that we are witnessing. Having said that tactical adjustments must be made over time to stay on course to ride the larger trend. In a nutshell, all we expect is for markets to change the colour from green to amber suggested us to slowdown, just like in a traffic signal, and exercising caution does more good than harm.
Conclusion – Asset class wise :
Fixed Income Portfolio : Those of us holding bonds and other similar debt instruments – no changes recommended.
Mutual Funds : Those of us investing into MF irrespective of whether we invested vide SIP or STP no changes suggested, since we have accumulated units at different levels and we should be ready to invest more during market corrections and hence no exit is necessary.
Direct Equity : This is where downsizing would be required and those of us invested into Direct Equity, we need to take a portfolio call. However, decision would be individualistic based on goal and investment time frame. Please consult your financial planner for next course of action.
PMS/AIF : A similar treatment to what we had in Mutual Fund. No changes necessary, provided we have a 5-year view.
The exit strategy is not applicable if you are long term investor, and you are able to invest more during market corrections. There is a reasonable chance that market may ignore all the above risk factors prevalent at present and continue to make higher highs, but there is no harm in downsizing positions especially after the stellar gains’ portfolios have seen over the last 3 years. As they say – pain is certain, while the pain of discipline weighs ounces but the pain of regret weighs tons.
Disclaimer: The views and suggestions are that of the Author of this Market Note 2024. This report is for private circulation only and must be treated as educational material and not as a professional advice to Buy/Sell any instrument. The recipient/reader is solely responsible for making his/her own investment decisions. If you choose to engage in such transactions with or without seeking advice from a licensed and qualified financial advisor or entity, then such decision and any consequences flowing therefrom are your sole responsibility. The report and information contained herein is strictly meant for the selected recipient and may not be altered in any way, transmitted to, copied, or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent. This report and information herein are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances.
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