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Markets in 20K range: Should investors cash in?

Markets in 20K range: Should investors cash in?

After two years, the Bombay Stock Exchange Sensex closed above the 20,000 level on 18 January 2013. Is it sign of a new rally that will take the stock market to new highs this year?

After two years, the Bombay Stock Exchange Sensex closed above the 20,000 level on 18 January 2013. Is it sign of a new rally that will take the stock market to new highs this year? Should investors cash in on their stock investments or wait patiently to reap more gains?

Market experts say the sentiments are in favour of a new high in 2013. Investors have already benefited from over 25 per cent jump in the equity market in 2012 after a subdued 2011, when the markets had fallen by 25 per cent.

"The Sensex can touch 22,000 and the Nifty 6,300 by the end of 2013. However, profit-booking can halt the rally in the near future," says Alex Mathews, head of research, Geojit BNP Paribas Financial Services.

The Sensex closed at 20,039 on 18 January, while the National Stock Exchange Nifty closed at 6,064.

Brokerage firm Prabhudas Lilladher expects the Sensex to touch 23,000 by the year-end. Motilal Oswal Financial Services expects the index to reach 25,000 if conditions remain favourable.

"I remain optimistic and think the market will touch a new high before the (Union) Budget. Many decisions taken by the government have led to such confidence," says Motilal Oswal, chairman and managing director, Motilal Oswal Financial Services.

The domestic markets have been upbeat due to factors such as deferment of GAAR (General Anti Avoidance Rules), fall in inflation to a three-year low and strong quarterly results posted by Indian companies.

The deferral of GAAR till April 2016 provides enough time to foreign institutional investors (FIIs) to review their portfolios. GAAR is aimed at checking tax avoidance.

In terms of valuation, the Sensex was trading at a price-to-earnings ratio of 18.05 on 15 January 2013, marginally lower than its five-year average of 18.80.

"On a forward earnings basis, the Sensex is trading at 15-16 times 2013 earnings," says Mathews of Geojit BNP Paribas.

Experts were hopeful of a cut in the policy rate by the Reserve Bank of India (RBI) after the wholesale price index (WPI) showed some improvement, but RBI Governor D Subbarao tempered the expectations by saying inflation was still a threat despite India's economic growth rate heading towards a decade-low. The WPI-based inflation eased to 7.18 per cent in December from 7.24 per cent in November.

Indranil Pan, chief economist, Kotak Mahindra Bank, says, "We had pencilled in 25 basis points repo rate cut in the 29 January 2013 monetary policy review. We continue to highlight a calibrated and cautious easing stance from the RBI and look forward to a 100 basis points cumulative cut in the repo rate in 2013." One basis point is one-hundredth of a percentage point.