Beware! This rally could end badly: Credit Suisse

According to Mishra, expectations of the BJP-led NDA coalition returning to power, and hopes of delayed cutback in the monetary stimulus in the US have been the major drivers of the rally.

The widely held view on the street is that indices are poised to make a new high shortly. That may well turn out to be true. Yet the rally could end badly as corporate earnings continue to disappoint, warns Neelkanth Mishra of Credit Suisse, and suggests that investors should be booking profits instead of adding to their existing positions.

"While the BSE200 is unchanged YTD (year-till-date), sector performance has been extraordinarily skewed: IT, Telecom, Pharma and Staples have outperformed, whereas every other sector has seen a decline. PSU banks, Metals, Utilities and Industrials bring up the rear.” And this is not the first time that bulls have been led up the garden path….. “Since Jan-12, this is the third such rally, where PSU Banks, Industrials and Metals have together risen more than 10 percent.” …..only to find that it ended up at the slaughterhouse “Each followed a steep correction, and was accompanied by a "hope" trade: EU recovery in early 2012, and the promise of reforms in India in Sep-12.” There are no signs of an earnings recovery yet: "But each was an opportunity to sell: a turnaround in these sectors is still years away, in our view, and falling earnings estimates are likely to start to dominate price action in a few weeks/months." (posted by Santosh Nair)

Source: Money Control

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