Indian markets will enter bubble zone once Nifty breaches 8,500-9,000

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NEW DELHI: 2014 has been a great year for the Indian benchmark indices. Not only they have been able to hit record highs, but have also managed to beat Asia peers in terms of performance so far in the year 2014.

The S&P BSE Sensex has rallied over 27 per cent so far in 2014 to hit its fresh record high above levels of 27000, while the Nifty managed to conquer 8100 in trade on Tuesday.

However, despite overall optimism, analysts are advising investors to remain cautious at this point in time considering the fact that we have already rallied a lot in quick time and most of the rally was based on hopes.

The S&P BSE Sensex is the best-performing market among major global markets, up nearly 27 per cent so far in the year 2014, supported by strong global liquidity and expectation of pro-growth reforms from the newly-elected Modi government.

The Nifty at 8100 and the Sensex at 27,100 are at life-time highs and may continue the up-move as money inflows are seen both from FIIs and retail participation through domestic fund. Apart from this, global crude prices are going lower, which is healthy for the Indian economy.

“However, valuations may be stretched around 8300-8450 levels on the Nifty and 27400-27700 levels on the Sensex if corporate earnings disappoint & inflationary pressures on the economy continue to weigh, apart from global issues like the Ukraine / Iraq crisis which may spoil the party on Dalal Street,” said Kiran Kumar Kavikondala, Director & CEO, WealthRays Securities Pvt.

Betting big on the government’s reforms agenda, net investments by overseas investors into India so far this year reached USD 30-billion level, while their cumulative total inflows into the country crossed the USD 200-billion mark, said a report.

India has managed to attract strong FII flows so far in 2014 despite geo-political uncertainties and this was possible because India managed to bring down fiscal deficit, current account deficit and revive GDP growth.

When the market rallies ahead of fundamentals, the scenario is often related to that of a ‘bubble’. So, is there a bubble building in the Indian stock markets? Well, not at present, but if the Nifty rallies past 9000 in 2014, then there could be a possibility.

“We are on the verge of starting a bubble. Consider this, in the last 16 days we have seen 5 gap-up openings on the index, which have already pushed benchmark indices to record highs,” said A K Prabhakar, Independent Market Expert.

“The rally may continue for another 3-4 months, but beyond 9200 is the level when we will enter the bubble zone,” he added.

The Sensex has rallied nearly 500 per cent in the last 20 years from the levels of 4,526.21 recorded on September 2, 1994 to fresh record high 27,019.39 recorded on September 2, 2014.

Indian markets will enter bubble zone once Nifty breaches 8,500-9,000: Analysts

How much can the markets correct from here?

Given the sort of momentum that we are in, analysts are not anticipating a huge correction from the current levels. However, given the fact that we have managed to rally in quick time without much of consolidation, a 5-10 per cent fall can be expected, they say.

source:  The Economic Times