The Indian stock market has constantly been rallying lately. Indian stock market is making new highs and have also outperformed the global markets. I remember that India’s Nifty was below 5000 when US’s Dow Jones was around 10,000, but now we are near 5650 whereas Dow Jones is near 10,500 only. The numbers clearly show that the Indian market grew much faster than the American market. Similar was the case with other Asian markets or European markets. We have clearly outperformed everyone recently.

What is driving the markets higher?

If you look at the transactions in our stock market, you notice that Mutual Funds or Domestic Institutional Investors (DIIs) are hardly buying, infact selling more recently. But Foreign Institutional Investors (FIIs) are constantly purchasing, they have added nearly 40,000 crores into the market in the last 3 months alone. It is very clear from the statistics that only the FII’s cash inflows are driving the markets higher.

I personally believe that our markets are becoming more of a bubble that is going to burst really soon. The out performance against global markets cannot continue for a very long period of time and a correction is due. We might rally a bit in the short term, probably to 5750 levels in nifty and then we might see some big profit booking. Nifty has a huge support at 5350 and it is very difficult to drag our markets below that level. Last time we saw a huge buying emerging at those levels and that might be the case during next corrections as well. Although Nifty dropping to 5350 is itself 6-8% correction which is not small at all.

How should you trade at the current market?

If anyone is looking to invest into the market, they should hold onto their investments and wait for the market correction. The investors can re invest into the market around 5350 levels if nifty holds there. The current market is over bought and a correction is definitely due. However if you wish to trade into the stocks, then you may enter but keep a strict stop loss close to your buying price. Don’t purchase stocks and get stuck in the correction, you will hate to enter at these high levels and get stuck with a loss.

If you are getting good profits in any companies you’ve already invested into, I would suggest you to book profits in every rally. I’ll sell all the stocks that have given me over 15-20% returns. I would re enter the stock after a correction. The markets are too highly valued and worth booking profits before FIIs start booking their profits decreasing ours.

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