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Sensex at Mount 49k: Are the markets overheated?

January 12, 2021 07:55 IST

'The more retail investors keep away from speculative activity, the more they will manage their risks better.'

Photograph: PTI Photo

In an interview with Prasanna D Zore/Rediff.com, Deven Choksey, managing director, K R Choksey Shares and Securities Pvt Ltd, discusses the market's budgetary expectations and some don'ts for investors even as the stock market bellwether, the Sensex, is within the striking distance of the 50,000 mark even as it scaled Mount 49k for the first time ever and closed at 49,270 on January 11.

How do you look at the stockmarkets hitting new all-time highs close to the Union Budget?

The most important positive shaping up for the markets right now is the vaccination drive happening across the globe.

The second most important aspect driving the market is the liquidity that comes from the global central banks.

Add to these the fact that most of the asset classes have started performing.

Along with equity and bullion, commodities and real estate has also started to show decent performance.

Obviously, when there is a balance of various asset classes, investor sentiment gets a boost and they feel confident about the sustainability of these performances.

What are the negatives that one needs to be cautious about in such a hunky-dory situation?

Any rise in inflationary pressure will mean that in some point in time the cost of money will also start rising.

If an increase in inflation is accompanied with rise in interest rates, then sometime later in 2021 they may harden and could have some negative impact on the market returns.

In the event of hardening interest rates, money will start moving away from equity into other asset classes, and that is where market may start discounting some amount of risk and we may see some correction in the market.

But that may not happen immediately. In the immediate term, the positives far outweigh the negatives.

How should investors play the markets before the Budget and after the Budget? Or, has the Union Budget stopped having any impact on investor sentiment?

The Union Budget has always been more of outlining the priorities of expenditure to be incurred and income accounting practice.

According to me this government has been practicing transparency in its fiscal discipline all throughout the year so I don't see any kind of a reaction to the forthcoming Budget.

At the most they may tinker around with some amount of revenue collection and the markets may try to absorb it for a few days and then get into a comfortable groove.

Are we witnessing a pre-Budget rally this January that began in the last three months of 2020?

I won't call it a pre-Budget rally. This rally is largely driven by liquidity and it doesn't seem to be waning anytime soon.

What are your expectations from the Budget?

Largely speaking, one will be looking at new infrastructure projects to be announced by this government.

There will be lot of priority alignments happening, but I think most of the major package announcements were made to stimulate demand affected by the COVID-19 pandemic since May 2020, the impact of which is gradually being felt in the economy and the structure of growth has definitely improved.

In that sense, there is nothing much one expects from the Budget except a lot of priority alignment in expenditure to give a further boost to growth sectors.

What will be your advice to retail investors?

The more they keep away from speculative activity, the more they will manage their risks better.

The momentum in the market will continue, but that should not be used for speculative purpose.

Do you think the market is overheated valuation-wise and we may see some shedding off of gains in the days to come?

While our market is overheated I don't see any major correction in the immediate future.

In my opinion, the markets will be fine with a 10 per cent correction.

PRASANNA D ZORE