The Nifty - where is it headed? Aug 2016

About 6 months back, I had called out that the markets could be on the way down, and my target was 6800. If it were to have broken down then 5500 could have been hit effortlessly.

Sure enough, the mkt went down to 6850 or so, but then has bounced back very strongly, from those critical support levels, and has been hitting 52-wk high , of late.

I am sure those of you who had stayed in the mkt or had trade for the short term, would have made great money in this period.

Where is the mkt headed from now on? Let us look at a few big factors:

1. Monsoon has done well so far. Reasonable good. As long as it does not flood the whole country, we should be in for record kharif harvest. Pulses remain a problem and will take long term mesaures to fix. So, with a decent monsoon season, the first worry is out of the way. Rural consumption should be decent enough.

2. Inflation continues to be well under control, and so, expect interest rates not to rise, for the next 3 to 6 months. This means, there will be enough interest from DIIs in the stock mkt.

3. Rupee is stable. Also, growth in other mkts has practically shut off. While Brazil mkt has risen spectularly ( much more than the Indian rally) , riding on the Olympics, their fundamentals continue to be shaky. China will take some time to digest their excess investments and clean up the balance sheets of their banks. So, there is hardly any interest there. The other mkts are practically going nowhere. Plus, money at near-zero interest rates is available in many developed markets, and if the exchange rate can eb held stable, then expect decent inflows from the, These factors, put together, will keep the FII interest in the Indian markets.

4. One potential risk is that historically, the election year in the USA has been a disaster for their stock mkts, and by deduction, the global stock mkts. If that happens , India wont be spared, either. But for that to happen, there is need for a trigger - economic , political or geopolitical. Until then chances are that the markets will rather go up than down.

5.Valuation-wise, based on 2016-17 earnings, the Indian markets are already into bubble territory in terms of valuation, with forward PE of more than 24 ( historical at 18-20) . But with liquidity governing the mkts now, I wont be surprised if the mkt goes up to a PE of even 30- until some geopolitical event pricks the balloon.

For long term investors, none of this should matter, as long as they are invested in long term stocks. Would I add to my positions now? No, I will wait for the mkt to correct.

For traders, I think in the absence of any " event", mkts are headed higher for the short term, until the balloon bursts. Stock specific traders could turn out to be sexy for the punters.