Is it time to take a break from the markets?

With negative cues like interest rates hardening (domestic banks have increased interest rates), FII selling (they sold Rs 8,247.20 cr in May), crude oil hovering around $72 a barrel and pressure on mutual fund redemptions flowing in, markets have nothing to cheer about.

In fact they seem to be entering a temporary bear phase, and marketmen feel that this will last for the next 4-6 months.

On the back of such a gloomy outlook, is it correct to take a holiday from the markets now? Experts say no. According to them, markets are now at much saner levels. They believe that the froth that was building is now over. Going forward the valuations are turning attractive and this in turn will pull in more liquidity, they say adding that liquidity is also not a concern right now.

Markets will move on positive indications like strong Q1 results, good monsoon and the leveraging problem getting done. These in turn would bring back the lost liquidity, which was the driving force when the markets made their journey from 9000 to 12,700.

On a positive note, they said that interest rates will stop hardening at some time, so why worry?

Rajen Shah, Angel Stock Broking, said, "I don't think its time to take a holiday. Markets had run up because of strong liquidity. From 9000 to 12,700, the run up was purely on basis of liquidity that was pouring in. Now the markets have to come to saner levels. The froth that was built up is over now."

According to him, valuations are turning attractive so therefore there is no reason for liquidity to stay away.

Guarang Shah, Geojit Financial Services, advises investors with short-term view to stay away but people with a long-term perspective can invest around 15-20 per cent of their portfolio in equities.

"We have seen heavy selling pressure coming in and is not being overtaken by the kind of buying one should see. We are headed for some kind of sideways and range bound movement.

"If anyone is looking at it from a short-term point of view say 3-4 months then they should stay away. Long-term investors can invest around 15-20 per cent, but then too they should stick to frontline stocks."

Mutual Fund redemptions can get intense and can aggravate the situation further, he said. "One should keep an eye on international crude prices. We have seen crude oil hovering at $68-74 and if it crosses $74 then we are in tough times going forward," he says.

Shah also said, "We most probably have entered a temporary bear phase that will last for another 4-6 months or we might move into a range bound movement. If we break 9,200 on the Sensex then we might see it going down further. For the long-term, investors can look at pharma, IT, cement and metals."

SP Tulsian, Investment Advisor, feels that those who want to make investments should do so now because this is the right time, but at the same time they should be prepared with a notional loss of 10-15 per cent.

Tulsian said, "There is confidence crisis. People have lost money and are not finding the market interesting. So, from that perspective it is time to take a holiday. But for those who want to make investments this is the time, provided they are prepared with a notional loss of 10-15 per cent. Otherwise I don't believe that you should move out of the market and that there is no future. But take a holiday from the F&0 market and don't leverage your position."

Now market needs positive indications like good Q1 results, good monsoon. "The problem of leveraging is also getting over, which would bring in liquidity. These factors should trigger the markets to go up," he added.

Sensex Rise and Fall: Complete Coverage

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