Take Caution for Minor Correction on Cards

Welcome back, I hope you all had a good week in the markets and otherwise too. The last 15 days have been phenomenal, the indices have all have had a great run, the small caps and mid-caps, in particular, had a super bounce and the bull blitzkrieg has taken us into the record books. However, now I feel that it's time for a bit of caution. A minor correction is surely on the cards and while this may not necessarily be a price correction, it could be a time correction. We saw this between the end of May to the end of July this year as well, where the Nifty moved less than 200 points in 60 days. 

There are of course a few things to keep an eye on, the Bank Nifty will be one of those key factors. As I was studying the charts this week, just looked like the banks were ready to fire and some good names offer good value there. Some of the insurance and housing finance companies too are lining up for a sprint. So, yes, the Bank Nifty may hold the Nifty up for the next week as well. Other cues to watch will be the US markets, things seem a little stretched over there and just seems like a little bit of fatigue setting in, and if that drops then we will follow suit. Also keep an eye on the INDIAVIX, which after hitting all-time lows has crept up almost 13 per cent in the last month. It's an important indicator to keep on your radar as well.For those of you that don't follow this indicator, it's also called the "investor fear gauge," and reflects investor predictions of near-term market volatility and risk. Usually, if the VIX starts to rise it's a warning sign of financial stress, and when it lessens it shows confidence and sometimes even complacency. To put into context the INDIAVIX hit a high of 70.3 on March 23, 2020, at the peak of the pandemic crash, and in end, July was trading at 11.5. Talk about a change in perception and risk appetite.

Another gauge that I have been watching is the Nifty PE ratio, thanks to a great couple of quarterly earnings, which has come all the way down to 26 which is a one-year low and would indicate that the markets aren't that overheated. Investors will keenly watch the next quarter's results that start coming out from Mid-October to see what happens with this gauge. DII's and FII's have had a quiet start to the week and neither has resorted to any major action, Friday of course is a holiday and Thursday could prove to be a volatile day owing to the long weekend and weekly expiry. 

My plan for the week ahead is to once again start taking a little bit of money off the table. Have enjoyed the rally in the last three weeks and would rather keep my powder dry for a reentry, when some of the stocks on my buy list present the opportunity. Travel, hospitality, IT, and entertainment will be the ones I will lighten and will take a short-term dabble in some of the financials. The auto-correction may have some time to go and the stories around the chip shortages only get worse and may spill over to ancillaries as well. Commodity prices have shown a sharp correction and I'm cautious on that sector, but the power sector I now fancy and will be making some investments there for sure.However, just reitering this is my strategy, and don't do anything without consulting your financial advisors first. Overall, 

I wish you all a great week ahead. Stay safe, stay well and stay financially healthy. Enjoy the Ganesh Chaturthi on Friday and may Lord Ganpati bring you and your family lots of happiness, peace, and prosperity.    

The author is Founder, Gaurav Bhagat Academy

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