Equity · Investing

Are we near to a Market Correction?

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Nifty/Markets are at all time high, and speculations are high on an imminent market correction as valuation are also said to be high. Does this mean we are close to a very near term correction in the markets?

Speculations are ripe for a market correction in the Indian market as Indian market tread through almost daily Nifty and BankNifty attempting to cross over an all time high new peak. Several experts have already predicted for a market correction and have been advising to reduce the equity exposure. Are we in a Bubble Market?

Global markets have also been rallying during last few months and have also made all time new highs. These are said to be driven by liquidity and same is also true to some extent for Indian market, apart from the fact that over last few months, masses have been choosing mutual funds for indirect investment in the markets as traditional FDs do not yield enough and there might not be enough avenues left for reasonable returns on the capital after government drive against black money.

Despite the fact that Indian markets are making new highs almost everyday, a closer look at relevant data, doesn’t suggest any bubble territory for Indian equities!

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Further, the data points suggests we may not settle lower even in the current series. Nifty Highest Put Open Interest at 9600/9500 and Call Open Interest at 9700, suggest a range bound movement of the Nifty to remain, atleast in the near term. Further, we may still have to discount the good monsoon and improving health of corporate balance sheets and supportive government policies. Also in view of the GST implimentation driven down cycle, we may also forsee a further rate cut in the next RBI policy in the month of August.

Market might have been betting on the explosive growth forward, after forming of the base, which the current government is trying hard and bring in the economic discipline and rationalization as per global standards, thus further attracting the global capital.

To add, the big bull of D-Street, Rakesh Jhunjhunwala said investors should not get worried about one day of correction as “we are far away from the peak“.  Nifty is more likely to double in the next 4-5 years.

The bull market will only eclipse when three factors are present — valuation froth, commitment froth and when there is bad news, he explained.

Elaborating on them, Jhunjhunwala said just by valuation froth, bull markets will not end. By commitment froth, it means that there is a lot of leverage buying, which is still not there. The third factor is bad news and when investors sell on the bad news, there is no buyer.

“There may be valuation froth right now, but there is no commitment froth. There is no bad news and when investors are selling, they are able to find buyers. So, I think, we are far away from a market top,” said Jhunjhunwala.

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