At this point of time i would be advising clients to be cautious. The rally may last as long as liquidity lasts but investors should be cautious. As of now there is no clear picture over what earnings growth in FY11 would be, so it was difficult to arrive at a fair value for the market based on earnings expectations.
If we look at the valuations,they are at the higher end. We are already trading at about 21-22 times. Markets have been able to meaningfully sustain above these levels at 2000 and early 2008. So,from a valuation perspective, the markets are now in a probably euphoric zone, it’s only liquidity or any of the unexpected positive news flows which could drive this market higher from here.
On FII and DII front, FIIs are buying and DIIs are not selling in this rally.There is a lot of momentum in the market. The volumes have steadily picked up these last few days and the breadth continues to be good. DIIs are not selling in this rally as they are following the insurance company's trend. Insurance company's sell when FIIs continue to buy and eventually the market comes down.
