Risks that may halt the current bull-run in the markets

That said, investors, whose wealth soared by a massive Rs 11 trillion since Budget day, should keep an eye on certain risks that may half the current rally.

FII selling: The current market rally has been fueled on the back of a substantial inflow of foreign capital into Indian equities. Any reversal in this trend, analysts fear, may also halt the market rally.

“Liquidity is a friend of the trend. As and when the trend reverses in the economy, the FIIs may take the money out putting breaks on the rally,” says experts.

Neeraj Chadawar, head-quantitative equity research at Axis Securities, says the continuous sell-off by domestic institutional investors (DIIs) remains a key risk. “If FIIs started selling and DIIs are unable to buy the positions, then we could see downward pressure in the market as most of the positives are already priced in,” he says.

Interest rate hike: Most central banks around the globe have held interest rates to bare minimum to enable credit off-take in the economy.

“If interest rates begin to rise globally and FIIs find other alternate and attractive investment opportunities then flow of money from abroad may halt or reverse. If the current liquidity corrects, then our markets will also correct,” says Deepak Jasani, head of retail research at HDFC Securities.

Last week, China decided to increase short-term interest rates with some key tenors approaching the higher end of the interest rate corridor.

Delay in execution of budget proposal: Finance minister Nirmala Sitharaman announced Rs 1.18 trillion-financial allocation for the highways sector in Budget 2021. However, any delay in roll out of such growth-driven projects may wear-off the bull-run, say analysts.

“The investment-led growth augurs well for a sustainable growth recovery from a long-term perspective. However, we acknowledge the execution challenges to the stated intent and this is the key risk,” noted some analysts.

Earnings recovery: The current rally, Chadawar of Axis Securities says, is built on the expectation of the sharp recovery in the corporate earnings. If recovery falls short, then it could be a challenge for the market to sustain at a higher multiple, he says.

“Earnings have surprised positively in the past two quarters, largely on the back of cost-cutting, price hikes, and volume growth leading to overall improvement in margins and top-line. However, the same may be difficult to replicate in the coming months,” opined experts.

Valuation: The benchmark Sensex currently quotes at a trailing 12-month P/E of highest-ever 34 times. Analysts say valuations look optically high as earnings over the past one year have been depressed due to the Covid-19 pandemic. Even on a two-year forward basis, the benchmark indices quote at 22 times, much higher than the long-term average of about 16 times. Sustenance of earnings recovery, therefore, is essential.

Vaccine roll out: Any delay in nationwide roll-out of the Covid-19 vaccine or any news related to failure of one of the vaccines may sour sentiment, say some experts.

Tech view: "Till Nifty holds above 14,750, overall trend remains bullish for a potential move towards 15,500 and 15,750. If it drifts below 15,000 and holds below 14,750 only then the market stance could change for any profit booking decline.Those who are worried from over stretched market move can shift to Option and Option strategy to mitigate their risk and ride the ongoing market momentum with lesser cost," says Chandan Taparia, derivative & technical analyst at Motilal Oswal Financial Services.