Market watch: a new peak?
The first trading day of July brings with it a mix of excitement and apprehension. Apprehension as we enter a month of big news flow dominated by an intriguing earnings season and excitement as we walk less than a 100 points away from an all-time high for the Sensex. It has been an interesting approach to the peak. After big rallies of April and May the market paused in June, almost circling around the old peak. Clearly, it was not ready for the big breakout but now it is too close. A good opening on Monday could do the trick. You could say that it is much ado about nothing, but all-time highs are always significant crossovers, not just for the level itself but the psychological connotations it comes with.
If the Sensex were to scale this significant summit this week, the next big question — indeed the bigger one — is how high will the bar be set this time and whether this crossover will be a durable one. In this, one would hope the Sensex does not do a Nifty. The Nifty made it to a new all-time high a few weeks ago but failed to carry on from there, actually slipping back into a lower range for some time. That is typically what you do not expect to see when a market makes a new high. In some sense this approach has been quite a laboured one, hardly a momentum blowout. While one would like to think the reasons are technical: Big IPOs, heavy derivatives positions etc, my guess is that the reasons are very fundamental.
A debate rages in the market today among participants on whether fundamentals justify much more upside for the index from these levels. Rich valuations and the prospect of some earnings slowdown have kept investors worried about where the market is going from here in the near term. Most global brokerages have year-end Sensex targets ranging between 13,000 and 15,000. By that token, we are towards the higher end of the expected band. That does not necessarily mean that the index will stay stuck. Who are we, after all, to say that the Sensex can go no further than a PE of 17? Could it surprise everyone and jump to 16,000, notching a PE of 19? Sure, it could. Anything is possible in a market. Even so, if the occasion does arise on Monday, and you raise that glass to toast, it would not hurt to ask whether some of the bubbles you see in there are just a wee bit frothy.
(The writer is Executive Editor, CNBC-TV 18)