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The Sensex has corrected 2 per cent over the last two trading sessions from its recent peak of 19,000.
During the corrections the defensives have gained and investors have been booking profits at higher levels to raise cash in the portfolio indicating a possible pause in the current market rally.
Within the Sensex stocks it is mostly the defensive names in the pharma, utilities and FMCG which have gained in the last two days at the cost of high beta (considered risky) stocks.
The reason for cautiousness is explained by the experts is driven by sudden spike in the share prices fueled by the sentiments and liquidity. The news of several reforms in the different sectors has not only improved the sentiments but attracted lot of fresh buying from both the domestic and foreign investors.
"This is not the time to panic, this is a normal profit booking seen after a swift rally in the markets which could last probably for a week," says Jitendra Kumar, who is technical analyst at SBICAP Securities.
Most of the market participants believe that the up trend in the markets is still intact though there could be correction due to the profit booking.
That apart, the investors are considered to be raising the cash levels in their portfolio at higher levels and are ready for further hike in cash in case prices go higher.
The analysts also believe that the investors will remain cautious this week ahead of results of HDFC and Infosys. Infosys, which was in news post the downgrades by a foreign brokerage, could set the tone for the markets after its result and guidance.
"Technically, momentum oscillators are indicating that current up thrust is depleting. We expect nifty to touch 5,600 in the coming week before making a fresh attempt towards 6,000" Says technical analyst with IIFL in a research note.
There is reason for the bounce back considering that the recent rally was largely driven by the inflow of FIIs money whereas the retail investors and the domestic institutions investors are yet to participate and that will provide the support to the markets at the lower levels.
In terms of valuations too, there is not much downside suggested. The Sensex is currently trading at 13.5 times its FY14 estimated earnings, which is lower than the 10 year historical average of 14 times. And since the fresh downgrades not happening one can be reasonably confident of current valuations.
In fact there is a possibility of earnings upgrades. "We believe the downgrade cycle is now behind us. Recent government measures along with more to come, monetary easing, and stable to declining commodities can drive earnings upgrades, going forward. Valuations remain below historical averages. We see more upsides in markets from here" says Rajat Rajgarhia, director of research at Motilal Oswal Securities in a recent strategy note.
