Valuation too high, wait for dips to buy

A volatile day for Indian markets but a historic one for sure as trends indicate that NDA is all set to form the government in 2019. Reacting to early trend, the S&P BSE Sensex rallied over 1,000 points to hit Mount 40K while Nifty50 rallied above 12,000.

A classic textbook scenario of “buy the rumour, sell the news” played out in markets as both Sensex, and Nifty50 gave up gains in the last one-hour of the trading session and turned negative as election results fell in line with the exit polls. According to CNBC-TV18, the Indian market witnessed its biggest intraday fall in last 11 years.

The S&P BSE Sensex hit a fresh record high of 40,124, and the Nifty50 hit a fresh lifetime high of 12,041 on May 23. Let’s look at final tally on D-Street – the S&P BSE Sensex slipped 0.7 percent to 38,811 while the Nifty50 dropped 80 points to close at 11,657.

The S&P BSE Sensex gave up 1,000 point rally as investors preferred to book profits towards the close of the trade. There is a high probability now that both Sensex and Nifty50 might have created an intermediate top at their record highs.

Most experts suggest investors to wait for some correction before deploying money into markets as valuations are relatively higher.

Internals of the market were far weaker this time because open interest had increased only 5 percent after exit polls compared to a massive increase in open interest in 2014 after exit polls.

“The Law of Alternatives is something to remember if you are a player on Dalal Street. As contrary to the general consensus that history will repeat itself, in the stock market, nothing goes as planned. Majority market pundits had predicted that since BJP gained higher majority compared to 2014 elections, markets will scale newer highs even in the short term,” Umesh Mehta, Head of Research, Samco Securities Ltd told .

“But, the exact opposite happened. Just like 345+ seats for NDA is a surprise, markets have also surprised everyone by falling. Low Open interest suggests that sentimentally the market was supporting bulls but hard money was not flowing in,” he said.

Mehta further added that now for 1) traders – markets will enter a deeper correction zone and could see reversals around the Budget; and, 2) investors – Markets are trading at very high valuations with Nifty’s P/E at 29x that keeps very little room for any margin of error. It is, therefore, better to let markets correct and invest rationally rather than emotionally,” he said.

In terms of sectors, the S&P BSE Telecom index rose 0.97 percent, followed by the S&P BSE Capital Goods index that rose 0.73 percent and the S&P BSE Realty index that rose 0.5 percent.

Profit taking was seen in the S&P BSE FMCG index that fell 1.8 percent, followed by the S&P BSE Metal index that was down 1.5 percent and the Consumer Durable index that dropped 1.1 percent.

Stocks in news

IndusInd Bank shares rallied 5 percent as brokerages remained strong despite weak earnings in March quarter.

Reliance Capital gained nearly 3 percent as the company said it will sell its entire stake in Reliance Nippon to Nippon Life.

HDFC Bank fell 3 percent as the board approved sub-division of equity shares from 1 equity share of face value of Rs 2 each to 2 equity shares of the face value of Re 1 each.

Global updates:

European markets are trading lower on the back of political uncertainty across the EU and ongoing concern between the US and China.

Asian markets ended on weak note amid trade tensions between the US and China. Shanghai Composite shed 1.36 percent to 2,852.52, Hang Seng was down 1.58 percent to 27,267.13.

Nikkei fell 0.62 percent to 21,151.14 and Kospi shed 0.26 percent to 2,059.59.

Get Lok Sabha 2019 Live Election Results, constituency-wise tally, news, views and analysis
Follow our Lok Sabha Election Result Live Blog here.