New Delhi: Persistent bullish trend witnessed by the Indian stock market for the past few months might not be sustained for long and correction might soon set in, economic think tank National Council for Applied Economic Research (NCAER) fears.
Though the market has stayed above the 13,000 level and continues to be on the radar of investors, NCAER believes that the patterns of peaks and troughs indicates that selling pressure might creep in.
The NCAER's indication is based on the study of Sensex movement for a period between January 2004 to September 2006.
The index touched an all-time high of 13,300 on Tuesday but has been closing in the red for the past two days amidst sharp fluctuations.
Inspite of FII sentiments being restored in the face of good news of robust economic growth and encouraging corporate results, recent movements have led to increase in volatility and uncertainties, NCAER said, adding the P/E ratio was also much above the long-term trend.
It said, growth in Sensex had also been driven by the capital goods sector and if investment climate was not supported by the policy environment, performance of this sector would be adversely affected, thereby, affecting the performance of the benchmark index.
Market analysts believe that a correction of about 400-500 points on the Sensex is healthy as a one way linear move northward move is not possible.
But irrespective of the hiccups and aberrations, which show themselves by way of corrections, some analysts said the long-term bull story would still remain intact.
According to a global investment banker, given the present P-E ratio, Indian market was fairly valued at 11,000 mark. Price earning ratio for the market seemed to be overstretched at the current level.
However, some analysts feel that though a short-term correction might set in the market, it would see a big upmove prior to next year's budget.
There is correction overdue as the markets for the past four months have gone unidirectional even breaching the psychological barrier of 13,000 mark, Invest Shoppe CEO Ashish Kapur said.
It is time to be cautious and time to covert a part of investment into cash, he said adding the correction would be a temporary phenomenon.
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