The Indian equity market has scaled new highs with the benchmark Nifty surpassing the 13,400-mark and the Sensex crossing the 45,000 level. The rally is largely led by massive liquidity infusion by the foreign institutional investors (FIIs), better than expected September quarter corporate earnings, hopes of COVID-19 vaccine and expectations of speedy economic recovery.
However, experts believe the sharp run-up in the domestic market warrants caution. Highly overvalued Nifty, profit-booking at high levels and rising caution among certain sectors may lead to a correction in the market going ahead.
"There is fear in some pockets of the market that the index has gone so high, so maybe market will correct and then we will buy. I am saying, market will correct but what you want to buy may not correct as much as you want it to," said veteran market investor, Madhu Kela to CNBC-TV18.
"The base of the market is rising... there are no signs of any euphoric valuation in the market. People should be adequately invested," Kela advised.
However, his outlook for the medium-term to long-term remains positive.
Ashok Wadhwa, group CEO of Ambit told CNBC-TV18, "At 32 times forward earnings, the market is expensive. It is more expensive than almost any other emerging market at this point of time."
Coining similar views, Amit Jain, chief strategist - global asset class at Ashika Group said the largecaps are highly overvalued and its is time for a pull-back.
"We may see a correction in this bull market. The rally in mid and small caps so far is comfortable. But the largecaps are overvalued. Huge global liquidity will keep the markets higher in the long term, but there will few pullbacks from time to time,” Jain said.
On sectors, Jain said he was bullish on metals and real estate. He believes that the public sector undertakings (PSU) are undervalued and it is a good time to buy PSU stocks.
Among other asset classes, Jain is of the view that commodities such as precious metals and industrial commodities will do well going ahead as the macroeconomic scenario improves.
Advising on the investment strategy, Jain said, "It totally depends upon the timing in which one invests in a particular sector. One should allocate 60 percent in equities, 20 percent in gold (is must) and 20 percent in other commodities amid present scenario."
On the technical front, the Nifty is around the resistance levels of 13,400-13,700.
"There is always a possibility of turning around from these levels and correcting. The overall trend continues to remain positive, but traders should exercise caution at these levels of the Nifty," said Manish Hathiramani, proprietary index trader and technical analyst, Deen Dayal Investments.
Hathiramani advises traders to maintain strict stop losses for all long trades.
(Edited by : Jomy)