Is it time to be Fearful?

Hip-Hip Hurry!! Once again we have crossed the magic number or the physiological barrier of 20k on Sensex and have leaped 6,000 mark on Nifty. 

But is it really time to celebrate?? 

Once again you can hear the so called experts appearing on chatter box with all good news. The most common news that I came across was, "the Indian fundamentals are strong amongst its peers which has aided significant inflows of FII cash." and the other news was "the rally in the stock market may continue as long as central banks across the developed markets keep interest rates low." 

So what??

Interest rates are low for a long time!! Fundamentals of Indian economy is/was stronger than most of the developed nations!!  All these points become visible only when the markets run up. 

Statements like these were repeated in the past when the market had touched an all time high in Jan 2008. Investors had witnessed the same euphoria and people were made to believe that the index will not fall back, due to various fundamental factors. Then what? The markets plummeted and reached an all time low. 

Agree!! That was a global disaster, but the Indian markets are not yet decoupled any how, or have they?? I even agree to some of the fundamental factors, such as good IIP numbers, humongous increase in tax collection, good GDP estimate - of roughly 9%, etc. But still, all these factors prevailed even when the market was languishing between 17k and 18k, so why all of a sudden this huge leap from 18,000 to where we are now?

The valuation of Indian equities appears stretched at these levels, and is one of the most expensive market globally. Now don't tell me that it's because of fundamental reasons, coz i am not going to accept that!! For that matter even Russian is a member of BRIC nations - fast growing - but yet it is having a PE of roughly 7-8x.  

The current FII rush has taken the valuations to a higher level and may be even ahead of fundamentals, "like it happens in every bull rally". The journey could continue for a while but will not be able to sustain, for sure!! 

Nifty Fear Gauge

The nifty volatility index recently touched an all time low sine inception of the index and is well below the pre-crises levels (please see below chart). Does this mean we should be fearful?

Conclusion

Straight talk no bak-waas (bluff). Don't follow the herd, think beyond what you see. It's we - the small investors - who usually get crushed in these euphoric times. When markets decline, people point to all the negative news; and when it increases, the pointing changes to positive information. 

I would recommend long term investors to have control on emotions and stay on side lines - even if the stocks move higher for a while. Because getting in now might be injurious for wealth!!

Happy Investing!!! 

 Green line in Nifty VIX Index and White line is Nifty-50