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Heads up! Market could trade in a range till Budget despite euphoria

There is a high probability that market could make a top and then tread in a range till the Budget as Nifty is trading at extremely high valuations with upwards of 29x PE on the higher end of the band, Umesh Mehta, Head of Research, SAMCO Securities, said in an interview with Moneycontrol’s Kshitij Anand.

Edited excerpts:

Q. Nifty50 gained 1.5 percent amid high volatility in May series. Strong rollovers for June series suggest the rally will continue; what are your expectations?
A. June might not turn out to be as hot and fiery as the current mood. If we look at the current scenario, fresh highs are not supported by enough fire.

The volumes are average, FIIs and DIIs have been net neutral amongst themselves. Moreover, there are no significant fresh inflows from the domestic investors; SIP inflows are nonetheless stable.

These are no conditions for a genuine breakout and therefore this could turn out to be a mirage. Traders might end up buying at the intermittent top and therefore it is time to remain cautious.

Q. What events can move the needle in the near term?

A. The key event to watch out for will be the Budget by the newly elected Government. There is also the second bi-monthly monetary policy by RBI next week. However, it may not be a significant or decisive factor.

Q. Concerns over high valuations have surfaced after earnings from India Inc. failed to cheer investors. Do you think we could possibly make a top and then tread in a range till Budget?A. Yes, there is a high probability as Nifty is trading at extremely high valuations with upwards of 29x PE on the higher end of the band.

It is unlikely for these multiples to sustain in the longer term but, for now, the bullishness of the Modi Government coming to power and the expectation of pro-economic growth policies will keep markets afloat, although rangebound.

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