Two weeks ago, this Linkedin Poll (https://tinyurl.com/nifty25k) was conducted by me. While 49% believed there would be a massive rally pre-elections, 42% didn't think so. Obviously many were interested in my opinion too. And I just told them that it's in the post title itself. :-) Yes, my prediction is that Nifty 50 will hit 25000 soon, probably around elections.
Prediction is a mug's game; for investing a more robust framework is needed
It's a Hobby prediction though and we will not act on it. We religiously follow our proprietary market valuation model for action (I didn't follow it only once though. I went with my judgment to ask clients to liquidate at the onset of Covid in the last week of February 2020. Will share more on it soon!). As per model, we will be liquidating gradually in the next few weeks/months at every 3-5% market increase and probably be in significant cash at around 25000 levels on Nifty, if achieved around elections.
Hobby Prediction doesn't of course mean it's just a random thought but based more on intuition and market and macro (economic and political) understanding developed over time. It's a combination of science and art!
Still, I would say prediction is a mug's game (there are way too many factors, including known unknown and unknown unknown) but difficult to resist for most people including me. Hence I have made it my hobby to predict markets. For real action, one needs to accept the fact that they (rather anyone) can't predict markets.
Valuations often do matter though.
One can never know where markets will head to but one can know what to do when markets hit certain levels in a certain time frame, especially if one has a robust valuation framework. Again here, operating with a range might be better than with a point in time. And yes the range would keep shifting with time as new developments and earnings come in.
Fundamentally, as per our valuation model (based on various metrics such as P/E, P/B, Mkt Cap to GDP, yield spread etc- not equal weighted), markets are at a more than average valuation but not richly or obscenely valued yet. But in a range of 22500-25000, if achieved in a short span of time (few weeks or months), markets will be excessively valued (most small cap and mid cap stocks already are! We sold a few of them in the last few weeks and redeployed into some MegaCaps. ) and we would sell continuously and gradually rather than wait for that specific level of 25000.
What if Nifty goes beyond 25000?
Nifty will certainly go beyond 25000 one day as the 5Ds- Democracy, Demographics, Demand, Digital, Dynamic Leadership are firmly in play. The question is not if but when.
The base level for now we think is closer to 20000 on Nifty50. Very low probability of Nifty going below that. Now the madness may take it to even 30000-35000 on the upside in a span of 2-4 quarters. That would be obscene valuations for sure!
Difficult to catch or time this one. If you have sold out, you might look like a fool while this lasts. But don't worry, the reversals in such scenarios tend to be sharper and often faster. The ensuing crash could be a very sharp one too leading to a 30-40% decline from the peak levels. Thus bringing it back in the range of 20000-25000.
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If that doesn't happen and Nifty peaks in the range of 24-25k, then maybe we will see a time consolidation again
What if Nifty goes beyond 25000 and never falls below that level again?
As per the inputs and data available currently, our model suggests that the probability of Nifty giving a positive return from 25k levels is just ~1%. We will play on the 99% probability and hold a good amount of cash.
But then Markets are markets. It's not just fundamentals but also sentiments that are in play and even more so in such scenarios. FOMO kicks in. No one wants to miss a piece of the cake. And markets end up stretching another 10-20% beyond their warranted range based on fundamentals and in a rare instance, Nifty may not come back below 25000.
In a worst case scenario that the 1% probability plays out, bad luck!
How will we face that situation?
There could be stocks that are still reasonable because of factors specific to them/their indistries in which case we will redeploy in those stocks.
Also, the model is dynamic and we will keep revising based on new inputs and data that comes in. So, this upper limit of 25k for going significantly into cash might shift upwards in the months to come.
Disclaimer: Not advice but only for discussion/educational purpose. For Advice specific to you, please consult your SEBI Registered Investment Adviser. And if you don't have one, what are you waiting for? See the list here https://tinyurl.com/SEBI-RIA or click here https://tinyurl.com/ARIA-Multipl
