Ganesha Smiles: It's time to bid farewell!

Ganesha is smiling on the equity markets, but sadly it's also the time to bid farewell. The BSE Sensex is on the threshold of Mt.21000 again after a gap of 32 months. Bulls have been on the rampage for the last couple of sessions, but just like all festivities must come to an end one day, the dream run on the markets is also nearing an end for this season. Retail investors are advised to exercise extreme caution at this juncture, and refrain from putting fresh funds in the markets. It may not be a bad idea to book some profits. However, long term investors should continue to invest in Mutual funds through the SIP route.

The question nagging the market pundits is whether we have moved into a bubble zone? Let us try to find an answer to it. A bubble is defined as "Something that lacks firmness, solidity or reality." The bubble isn’t bad at all, that’s when prices inflate and living is good. As most economists will tell you, it’s the bursting of the bubble that markets should worry about. Forming of 'bubble zones' is not new to the markets,  as markets are not expected to trade on fair valuations all the times. “When people start using phrases like ‘this time it’s different, or we have a new paradigm, or I better buy now or I won’t be able to afford it,’ then you know you’re in trouble,” says economist Will Dunning. Investors should be able to see the writing on the wall.

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  There is a clear disconnect with the fundamentals. The PE multiple for the markets at 23-24 has moved into troubled zone. What is worrying about the current rally is that the PE of small cap index has also inched towards the 20 mark.
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  The rally is fuelled by FII money, sometimes called hot money. Unfortunately, there are no means to identify the origin of this money. How much of this is speculative investment by hedge funds, is any body's guess.
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  There is also the derivative bubble which threatens to destroy not only the US economy, but has serious repercussions for the developing world.
  The derivatives market is almost entirely unregulated and in recent years it has ballooned to such enormous proportions that it is almost hard to believe. Today, the worldwide derivatives market is approximately 20 times the size of the entire global economy. 
• "It's always better to be safe rather than sorry".

The intention of this piece is not to scare the investors but make them appreciate the impending scenario.