Stock markets: Is it time to book profits?

With Nifty near its 2016 high, experts recommend short-term investors do so; those with a long-term view needn’t worry

After hitting a bottom of 6,987 points on the day of the Union Budget, the CNX Nifty’s rebound to conquer the year-to-date high of 8,273 has been interesting.

Also taking many by surprise is the recent note by Goldman Sachs which downgraded global equities (including India) to neutral. While the note was largely focused on the US S&P 500 index, its harsh tone made market participants across the world exercise some caution.

Thereafter, global brokerage Macquarie reduced its December 2016 target for the Nifty from 9,200 to 8,800, a downgrade of four per cent.

While the sentiment around Indian equities remains positive and unchanged, experts suggest it is probably time for investors to book some profit.

The view coincides with a string of global uncertainties awaiting equities in the coming weeks.

After these reports, the Nifty has dipped about two per cent and experts suggest the markets are entering a phase of consolidation.

As A K Prabhakar, head of research, IDBI Capital, cautions: “The Nifty might enter into a consolidation phase and we might have 200-points correction in the near term due to global uncertainties.”

Jimit Modi, chief executive officer (CEO), Samco Securities, shares Prabhakar’s views.

“With correction time setting in and the market awaiting important events like the US Fed meeting and the Brexit referendum results, the outcome of these will have effect in the short term,” he warns.

This brings the question of how investors should protect themselves from the near-term vagaries anticipated in equities.

Deven Choksey, managing director, KRChoksey Investment Managers, advises those with an investment horizon of six months to book profit in these market conditions.

U R Bhatt, managing director, Dalton Capital Advisors, seconds Choksey and adds that global volatility might prevail for some time. “For short-term investors, the markets are at good levels to book profit,” he adds.

“Brexit and the US Fed rate hike are worrisome factors for the market, while we don’t know when things will flare in China.”

However, G Chokkalingam, founder, Equinomics Research and Advisory, feels it would be unfair to broad-brush and book profit across counters. “Profit booking depends on valuations. There are still a lot of stocks at attractive valuations.” he affirms.

Saurabh Mukherjea, CEO, institutional equities, Ambit Capital, has similar views. It says at any point in time, you can find sensible stock picking opportunities.

“That opportunity still exists, even as there are overbought stocks in the mid-cap space”, he suggests.

“While stocks like Asian Paints don’t look attractive at these valuations and it doesn’t make sense to buy aviation stocks, given the margin pressure they might face in the coming quarters, mid-cap health care sector stocks still offer potential for investors”, says Chokkalingam.

With the likelihood of a national goods and services tax being enacted soon and a favourable monsoon, Prabhakar bets on automobile and consumer discretionary stocks.

“While the Nifty offers some profit taking, I would continue to remain invested in these sectors,” he asserts.

Stocks such as ITC, Hindustan Unilever, Page Industries, Tata Motors, City Union Bank, Berger Paints and Finolex Cables dominate the ‘buy’ list of Ambit Capital.

While there is cautiousness from a short-term perspective, most experts say long-term investors need not worry. Choksey feels those with a long-term horizon should remain invested in the market and not look at profit booking.

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