Investor beware! shrewd market tends to draw investors in and trap them

But analysts are growing increasingly suspicious about the

rally. They say it is difficult to lose sight of the hard

macro realities and they do not justify such a rally.

“This is just a liquidity-driven rally. FIIs are continuously

covering their shorts since March-end. They are long because of excess liquidity. The moment something goes wrong in   global markets, you see the apprehension,” an expert said, adding the domestic equity indices can easily correct 20-30 per cent as ground reality is very challenging. 

He advised investors to book profit at these levels.Foreign

portfolio investors pumped in a massive Rs 20,824 crore into domestic stocks in the first week of June. Prior to this,  

they bought shares worth Rs 14,569 in May after selling

shares worth Rs 61,973 crore in March and Rs 6884 crore in April, NSDL data showed. 

Nifty has rallied from the low of 7,511 to 10,328, delivering

a solid 37 per cent returns within a very short span of time.

In the Sensex pack, stocks like M&M, Reliance Industries

(RIL), Sun Pharma, Bharti Airtel, Hero MotoCorp, Bajaj Auto

and ONGC have risen 30-85 per cent from their March lows.

About 54 midcaps and smallcaps have doubled prices in this period. They included Opto Circuits, Vikas Eco Tech, Prozone   Intu PropertiesNSE -4.90 %, Sanwaria Consumer, Sintex   Plastics, Marksans Pharma and Jain Irrigation, among others. Market veterans say new investors who have tasted these returns in their very debut are at high risk of burning their   fingers. 

“The problem is these people do not understand the risk,”

says another expert.“The market often plays a canny trick to bring people inside. Any sudden correction will force investors to bring in more money on the table to average losses and that time they will get stuck for 1-2 years.”

He said this is time to be very careful. “We are in a bad

phase of the market. Things are not improving at the ground level. I see Nifty at 6,200-6300 levels in next selloff,” he  said.CEO & Chief Portfolio Manager (PMS) at Prabhudas   Lilladher, says one should keep a hawkish eye on the US   Dollar Index to figure out how long will this continue. “The clearest single indicator of global risk appetite is the   US Dollar Index. A sharp fall from 103 level during the peak   of Covid-19-related fears in end-March 2020 to 96.5 now is  signalling a massive risk-on trade with money pouring out of  safe haven US government bonds into risky assets like   equities, including emerging market stocks,” he said. This, he said, is underpinned by trillions of dollars of   liquidity support provided by global central banks and fiscal   stimulus by various governments.