Sensex At 30,000: Is There A Case For An Intermediate Pause?

‘I cant find a big investment idea currently. I’m holding on to my current investments though – don’t expect a large correction.’ This comment came during a coffee conversation I was having with a domestic investor who is usually bullish. I can say with conviction though that most mutual fund managers would echo these words. Let’s face it - valuations aren't cheap. The markets are trading at 17.4 times one-year forward earnings estimates polled by Bloomberg, with the 5-year median one-year forward being 16.1 times.

Quick Checklist

1) Will we see a strong growth recovery quickly? No.

2) Could there be an end of the disinflation trade, and of the monetary easing cycle? Very likely.

3) The Rupee appears too strong at current levels. Maybe, yes.

4) Earnings growth expectations are unrealistic. Maybe.

5) Credit growth outlook remains poor. Yes.

The Indian markets have not shown a correction of over 3 percent since Christmas 2016. I argued in my article yesterday that the markets have not undergone that correction simply because the wide safety afforded by liquidity sloshing around. A top currency forecaster, however, believes that fund flows are likely to slow down, which could impact the level of the currency as well.

If that were the case, we could, maybe, see a small correction or an extended pause. How long, though will this pause be, is anybody's guess. It could well be a time correction and not a price correction. However, I am not the one to wager on this one. Nor, in my humble opinion, should you.

Niraj Shah is Markets Editor at BloombergQuint.