Sensex Making New Highs – Should I be worried ?
Sensex Making New Highs – Should I be worried ?
Sensex Making New Highs
Sensex was around 20,000+ in Jan 2014 and started making rapid moves and gained around 15% in 3 months time and touched a new record high of 22,900 on April 23rd.
In these 3 months, almost every day, the business TV channels and business newspaper were shouting at high pitch that the market has made new record high., Please don’t worry about market making new highs. When I looked at this month grocery bill and veggie shopping bill, they also made new highs. You all know the petrol prices every month makes new high. Price of Saravana Bhavan Masala Dosa also makes new high regularly. In a country like India, where inflation is close to double digit, anything making new high is not a news. It is just noise. Let us ignore them and try to seek the matter.
All these stock market noises, obviously, have brought the attention of the investors who stayed away from the stock market. This is the crowd that regularly “Buys high and sell low”. We got their attention now.
In a recent conference that I attended, Mr.Prashant Jain ( He manages largest Indian mutual fund HDFC Top 100, also known as Indian Peter Lynch. ) commented, stock market is the only place where buyers are ready to make the asset purchase only when the prices are high. If they feel the prices are not really high, they are not happy and they don’t want to buy. They are eagerly waiting for the prices to go up. This does not in any other market!
On the other hand, even sellers behave with this same irrationality. They don’t want to sell now and they are taken over by the greed. These behavior will look absurd to any consumer of goods who always look for the bargain and buy things at bargain.
But this irrational decision is very comforting one for the stock market buyers and sellers !
This kind of behavior is expected out of new investors. But what is interesting is, even seasoned investors get confused by these noises.
Experienced investors who have faith in the stock market returns for long term investing also get confused by their noises, they wanted to know – Should they continue with their SIP ? Should they wait for the market correction before continuing to invest ?
Long Term Investor
Sensex is currently trading at forward P/E of 14.1. It is below the long term average p/e of 14.6. So, what we can conclude is the market is trying to undo some damages that has been done earlier and trying to get to the average. We are moving from under valuation to average valuation level. Reversion to mean is happening. So, we don’t need to panic and press the parachute button.
If you are long term investors and your financial goals are more than 5 years away, continue your monthly investment plan. You should be happy to see that Indian stock market has some life to it. And all the faith you had in the market so far, just started paying off. Be happy that you stayed the course and you are reaping the benefits. This should increase your confidence in the stock market.
Every one who invested, in last 5-6 years, at different time in any decent fund, would see gains now. If you don’t see gains in any of your mutual funds where you were regularly adding money every month, you should talk to your financial adviser and get the fund performance reviewed. That could be a bad apple in your basket. Throw that away. Move money to another scheme.
Speculator Play for Election Day
1) Election Results – Several experts have opined that the market is trying to price Modi as PM. If this is true, and if Modi doesn’t win the majority, you may expect a 1000 points drop in Sensex on the day of the election results. On the other hand, if Modi wins with decent majority, the market can also go up by 1000 points. Since the odds are same in my opinion, I suggest no action until the election day. UPA win is not priced.
2) Keep the guns dry. Keep some ammunition handy.
Move some cash and keep it in the bank account for any action for that day. Alternatively you can also switch from your liquid funds to stock funds in the same day, within the same fund house, if you place order before 12 pm.
Let us say, your target is Birla Sunlife Frontline equity fund, move some cash to BSL Cash Manager or another liquid fund and keep it ready. Because inter AMC switches will not be executed in one day. There is no guarantee you will get the same day NAV if you invest more than 2 Lakhs in one scheme. The new SEBI rule expect the money to be credited into the AMC account before they can issue the units for amount more than 2 Lakhs. Don’t take this risk when the time is critical.
I will say any drop over 600 points is good buy.
3) If this plan has to be abandoned because stock market started going up, after election results, be happy that investments that you already made are making money for you. Continue your monthly investment plan.
4) Currently corporate earning are expected to grow by 15%. With a stable, working government in center, FII will start pumping money in huge quantity. The market might become very happy, and P/E expansion is also possible. It might move one standard deviation, that is about 2.4. New P/E could be 17. With new stable government and 15% earning growth, we are looking at returns between 35-40%.
Interesting times to be a fully invested investor !