When will the 'healthy' correction take place?

The Indian equity markets continue to power on. On Monday, the stock indices got a major boost in the form of industrial production numbers, which came in at a 22-month high, and buzz that the warring Ambani brothers may be headed for a settlement in the bitter legal tussle over supply of gas. With the Sensex atop the 17,000 market and valuations certainly not cheap as compared to six months ago, will the market see a correction — something that everybody is terming ‘healthy’? Analysts think so but with the usual caveat — liquidity is the joker in the pack you can’t predict and so long as that remains robust, you never know. View from the street “There is still a lot of liquidity flowing into India,” said Sonam Udasi of brokerage firm Brics Securities. “It’s still looking attractive though our view is cautious on the market.” “While there is enough money waiting on the sidelines, people would prefer to see some correction — even if it’s only a 5-10% correction — and that’s the broad voice what we have heard historically,” said C Jayaram, ED of Kotak Mahindra Bank. He added that, if indeed a correction took place in the market, it won’t exceed 5–10% because of the amount of money waiting on the sidelines to get invested. Jayaram, however, was concerned with the market rally and said stocks had gone up more than the expectation of a recovery in the companies’ actual businesses. “At these levels it becomes very difficult to justify the valuations particularly in many of the frontline stocks,” he said. “I would also suspect that the market has factored in a lot of positives in earnings upgrades as well. Some of those may indeed happen but I would also think there could be some cases in which upgrades or improvement in earnings may not be as much as the market thinks it will.” “I would be cautious about whether earnings upgrade in many of these cases is actually justified. If you put the whole thing in a pot then I would argue that there is a larger case for disappointment right now rather than for any sort of big positive,” Jayaram said. However, almost every analyst has been for long echoing the correction-is-healthy call but the market continues to surprise. Information technology: “One or two big concerns about IT is that it’s a question of in terms of visibility as to how clear is it particularly for the smaller and midcap IT firms,” Jayaram said. “More immediately, the question of the rupee strengthening seems to be a feature right now and unless you start to see some reversal of that, honestly I can’t think of too many reasons to be particularly positive about IT right now.” Capital goods: “Within the sector, we have an overweight on the transmission and distribution (T&D) equipment space, on companies which are into project execution. We are positive on Jyoti Structures, Kalpataru Power Transmission all these companies. We are not so positive right now on the utility space in the near term,” said Udasi. Metals: “Within the metal space, we are generally positive on the resource companies, so we may not be so positive on the commodity aspect as such because it is too cyclical but on whoever owns the resource,” Udasi said. “So we are positive on Hindustan Zinc with a long-term view. Whoever owns the raw material on this rather than the metal itself.” Source: Money Control