Nifty at 13,000-mark and Sensex at record peak: Is it time to book profits?

Secondly, experts feel that the steep 24 per cent contraction clocked in Q1FY21 was the bottom the economy could have hit. A lesser contraction between -5 and -10 per cent will start the recovery process, with the GDP growth rate turning positive by Q3FY21.

This, in turn, will support the earnings growth. According to data compiled by Bloomberg, Nifty EPS (Earnings Per Share) is expected to rise from 465 in FY20 to 677 in FY22, logging a growth of nearly 21 cent CAGR.

“After a long time, we have seen analysts revising estimates post earnings on an aggregate basis as consensus FY21/22 earnings are up by 9 per cent/4 per cent. Discretionary, private sector banks, and NBFCs have seen maximum upgrades as Nifty FY22 earnings are almost 18 per cent below Feb peak,” says the head of research, IIFL Securities.

Furthermore, the structural reforms in the agriculture and labour sectors, along with the Atmanirbhar scheme, initiated by the government to fight the crisis, will ensure long-term sustainable growth rate, the report says.

As benchmark indices have recouped 73.5 per cent from their March 2020 lows, Motilal Oswal Financial Services says the valuations are around their historical average. According to their their analysis, Nifty P/B 1-year forward is trading at 2.8x as compared to a 10-year average of 2.6x. Nifty RoE 1-year forward, meanwhile, is at 13.4 per cent as against average of 13.8 per cent.

"Valuations of certain front-line large cap stocks are definitely very expensive. The rally had started off with large-caps but now, even broader markets are performing. Therefore, while large-caps look expensive, there is value left in the mid, small-cap segment," says G Chokkalingam, founder and managing director of Equinomics Research.

Even as analysts expect markets to continue with the uptrend on the back of liquidity surplus, negative triggers, which the markets are not pricing-in, may lead to a sharp and sudden correction, they say.

Sofat of IIFL Securities bets on sustained uptrend as investors account for the improvement in corporate earnings. Besides, the fall in dollar index suggests that markets may not come down soon as global allocation increases to emerging markets like India, he says.

So far in the month of November, FIIs and FPIs have invested Rs 48,278 crore in the markets till yesterday(23rd November), NSE data show. This is the highest monthly inflow in nearly two decades.

Chokkalingam, however, cautions that investors should increase their cash position by 20-30 per cent as any outflow by FIIs will lead to sharp sell-off in the market.

"Investors holding deep-value small-cap stocks may hold their positions, but otherwise investors should start taking profit. In March, there was a net outflow of around Rs 10,000 crore which led to markets correcting by 40 per cent. Therefore, if these stretched valuations trigger a sell-off by FIIs, the fall will be massive and investors won't get a chance to participate," he says.

"The rally since March has been due to increased retail participation. These investors have not yet witnessed any steep correction. Therefore, nobody can predict how they will behave whenever the market corrects. Therefore, while traders can continue to play markets, long-term investors should gradually start booking profit," he says.

"The overall sentiments are strong and the market outlook is positive going forward. If the foreign fund inflows continue, we can see higher levels on Nifty in coming days/weeks. Nifty can possibly touch 13,200-13,400 levels also. That said, the upmove depends on the sustainability of the economic growth over the next few months post festive season. Hence at the current market levels it is advisable to partially book profits and sit on 15-20 per cent cash in the portfolio. Any corrections in the market can be used to deploy funds at lower levels," suggests some experts.