As equity markets keep moving higher , there seems to be a ‘consensus’ among the market participants that the market can continue to make new highs . This is the time we should be a bit cautious .
Can liquidity take the market higher from here on ?
Yes , certainly it can .
Will the bull market continue in the long term ?
The world is looking at good growth numbers from all the major markets. India is one of the best markets to invest in. With a pro growth stable government , the sky's the limit for India. With new policy initiatives like GST , Tax reforms coming in , we are in a long term bull market.
Is the equity market looking overvalued in the short term ?
As we see more clarity in the long term growth , markets starts to discount long term good news. Any small negative surprise in such a market ,may trigger unwinding of longs.
The Fed will have to start unwinding its balance sheet at some point . The Fed balance sheet grew from about $1 trillion before the crisis to $4.5 trillion currently, as the central bank purchased Treasury and mortgages to help the economy and keep interest rates low. And that hour of reckoning may be near . This in turn , will soak up liquidity faster than anticipated .
Which in turn will trigger short term correction across risk assets .
Traders can start to take profits . So far as investors are concerned , they should wait out the correction and then buy quality stocks !
Portfolio building is a long term process , and short term corrections are the best opportunities to build portfolios.