Tear away rally on the bourses is time for caution for investors as most stocks have touched crazy valuations and one needs to trade with caution at these levels. Most indices have hit all time highs and while one do not visualise a scam or a bubble, stock prices have run ahead of time and some correction looks imminent. Liquidity is driving stock prices as safe bets like fixed deposits, Bonds and other government instruments give low returns on account of falling interest rates. Inflation and unemployment are rising and that do not augur well for our economy.
Demand and supply mechanism determines stock prices which at times can be rigged. One should be cautious dealing in stocks that trade in circuits as many operators are active in stock markets today. If stocks have doubled or trebled in a few days, they can very well reverse and investors are advised not to be greedy but buy stocks that are backed by sound management and fundamentals. The India story looks good for long term and one should be in cash at the moment so that the crash in the markets can be used as a buying opportunity!
(The views expressed by the author in the article are his/her own.)
