Are the Markets Overvalued? - Sainik

The markets were in a reasonably tight range during most part of the week. The Nifty opened at around 5950 and saw a high of 6050, closing around 6020 for the week. The action was in midcaps and there seemed to be heavy selling by local institutions through the week.

However, FIIs came back with renewed vigor and there seems to be no let-up in their appetite. So long as the FII money is coming, the direction of the market is up.

There were a few voices in the wilderness regarding caution. The question is: Are the Indian Markets overvalued?

One of my close friends sent me comparative numbers of the Sensex in 2008 and its current level. This had been sourced by a friend from one of the largest retail brokerage houses in the country.




Based on this comparison, the brokerage house is indicating a Sensex target of 27,000.

Whether the Sensex would reach the target above would entirely depend on the global liquidity patterns. As of now, global liquidity is strong and will get stronger should the Fed begin its QE2.

Over the weekend there was an interview with a famous hedge fund manager on CNBC (US), in which the manager predicted that the stock markets in the US are ready to go much higher. The Friday rally in the US markets was attributed to this man.

Closer home, CLSA is is of view that the US markets are the cheapest since 1957. It is predicting a renewed bull run in the S&P 500 toward 1400 by the end of the year.

Currently the S&P trades at around 1150. In the local markets, the FMCG stocks seem to have become the darlings of the market. The banks and tech stocks are seeing continous purchase.

Your strategy should also be the same. Buy on all declines. The Nifty has strong short-term support at 5950 and resistance at 6150.

Mahindra-Satyam seems to have had a volatile run from Rs 95 to Rs 113 - it closed at Rs 100. It is still a buy with support at Rs 90.

Punj Lloyd seems to be on the verge of a breakout. CUB, IDBI Bank, VIP Industries, Reliance Industries look interesting and should be bought whenever the sentiment is negative.

It is a good idea to lighten up on cement and technology stocks ahead of the results season.

Whatever you do, hope it is profitable.