Aditya Arora of Adlytick believes that current market valuations, indicated by metrics such as PE ratio and price to book ratio, are significantly inflated. He anticipates a correction ranging from 1,000 to 4,000 points from the market’s peak. Arora suggests that a positive outcome in the election may lead to a temporary surge in the market.

However, he notes that signs of excess are evident across all market segments, including midcaps, smallcaps, and largecaps, with the latter already showing signs of correction.

Consequently, Adlytick is taking short positions as the market continues to rise.

Stock Market Crash Alert!

Aditya Arora shares that they are currently positioned in the market, anticipating a correction of 1,000 to 4,000 points in Nifty following the election. Their rationale is based on the widespread expectation of significant market growth post-election, driven by the anticipated return of the BJP government to power.

Arora notes that PE multiples across various stocks and sectors have reached excessively high levels, leading them to prepare for a potential downturn.

Market Correction Looms: Adlytick’s View

We believe that the markets are significantly overvalued based on metrics like PE ratio, price to book ratio, and technical analysis, indicating their expensive nature.

Our prediction of a correction ranging from 1,000 to 4,000 points is contingent upon the market’s peak, which could occur after the election. A positive election outcome might initially drive a short-term surge in the market.

However, we anticipate a subsequent correction within the specified range. We observe excessive speculation across various market segments, including midcaps, smallcaps, and even largecaps, with the latter already undergoing correction.

FIIs Sell-Off Triggers Short Positions

Foreign Institutional Investors (FIIs) have been persistently offloading their holdings in the cash market for an extended period. Several factors contribute to a negative outlook for the market.

Firstly, overvaluation remains a concern, compounded by geopolitical risks.

Additionally, upcoming elections in both India and the USA add further uncertainty. These combined factors present a lucrative opportunity for short sellers.

Accordingly, we are actively establishing short positions in anticipation of significant corrections, both in specific stocks and across the broader market.

Yes, indeed. Amidst the broader market downturn, there are pockets of relative safety worth considering.

Typically, defensive sectors such as pharmaceuticals (pharma) and fast-moving consumer goods (FMCG) tend to perform well during such turbulent times.

Additionally, the metal sector is showing promise, especially if the global rally in metals like copper, zinc, and aluminium persists. However, it’s important to note that there are pros and cons to this outlook.

Wait and Watch Amidst Downturn

Even though the global macroeconomic conditions may favor the metal sector, the ongoing corrections in both global and Indian markets pose challenges for profitability.

Market conditions fluctuate between periods of abundance and scarcity, and the approaching election intensifies volatility, possibly leading to a spike in India VIX by 10 to 20 points.

Given these circumstances, traders and investors may find it prudent to remain on the sidelines. While this approach may entail missing out on potential gains in the short term, it also safeguards against capital loss.

Moreover, lower stock prices resulting from market downturns present opportunities for significant returns, potentially ranging from 5% to 10% with strategic buying. Thus, adopting a wait-and-watch strategy appears most advisable at present.

Short Now, Buy FMCG Later

Stock Market Crash Alert!

While I’m generally cautious, I do see potential short-selling opportunities, especially post-election when there might be a temporary market surge.

This presents an excellent chance to capitalize on short positions, considering the positive news has already been factored in. With tight stop losses and significant potential targets, shorting at this juncture could be lucrative across various time frames, spanning from one to two weeks, one month, to three to six months.

Additionally, in terms of long positions, the FMCG sector seems promising, with Britannia being a notable stock to consider for purchase.

Stock Market Crash: Given the recent rally, I believe Britannia can still be purchased at current levels. There’s a notable flow of funds into this stock, particularly as money is moving out of certain other stocks.

FMCG, along with sectors like chemicals and pharmaceuticals, has experienced significant underperformance for a while now, suggesting potential for a mean reversion trade.

Britannia presents a good buying opportunity, even at its current price. One could consider buying at around Rs 5130, setting a stop loss at Rs 4830, and targeting Rs 5430. However, it’s important to note that while I expect Britannia to outperform relative to the market, given the current choppy market conditions, I’m not anticipating complete outperformance.

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