Recently, RBI Governor Shaktikanta Das warned market participants that India's stock market is 'disconnected' with the real economy.
"There is so much liquidity in the system, in the global economy, that's why the stock market is very buoyant and it is definitely disconnected with the real economy...There will definitely be a correction but we can't say when," Das said.
In March, Nifty 50 and Sensex had corrected by nearly 40% from their all-time highs earlier this year. Thereon, both the benchmark share indices have recovered sharply. Now, Nifty 50 and Sensex are only around 7% down from their all-time highs.
We asked some experienced fund managers if they also feel a correction is imminent and how they are preparing for the situation.
Vinit Sambre, Head – Equities at DSP feels that the recent rally is driven by strong liquidity. Fundamentally, the economy is still on weak footing.
He believes that the market will get a reality check sooner or later which may lead to disappointment. Besides, recent recovery is not a full steam recovery as people are assuming. Near term situation will remain challenging and keep the market volatile.
The DSP MF equity head said that his fund house has kept a 5-6% cash buffer to deal with the situation.
Nimesh Chandan, Head - Investments Equities at Canara Robeco MF is of the view that the market moves based on longer-term growth expectation. In March, investors were extremely cautious, worried and fearful but now they have moved to optimism with a long-term view on the economy. In fact, there are businesses that are attractive even in this market with a 3-5 year view.
About his strategy to operate in the current scenario, Nimesh said that rather than timing a correction, they are focusing on businesses and their intrinsic value.
"It is difficult to really time the market. Therefore, our investment style is that once the company crosses our bull target, we trim our exposure," Nimesh said.
S Krishnakumar, CIO - Equity, Sundaram MF is of the view that the bear market has ended and the bull market is beginning. Going ahead, a broad based market rally is more likely than 10-15 stocks driving the market.
He said that correction and consolidation are part and parcel of markets. Therefore, there is no need to worry if you are a long-term investor. However, short-term investors need to tread cautiously as valuations looks expensive in the very near term due to the disruptions seen in corporate earnings.
Navneet Munot, CIO at SBI MF said that it is always difficult to predict the near term movement in markets. At this point, valuations are not the only driving factor for the markets. Many other factors such as liquidity from central banks and Robinhood investors are supporting markets.
He said that SBI MF is not taking large cash calls in anticipation of a correction in equities.
