The past few months have been action packed for the markets. There is optimism and increased risk-appetite as reflected in the all-time highs of both the Sensex & Nifty. The resounding mandate given to the new Government has brought back confidence and there is a general belief that the country should get back on track. Stock market indices are making headlines and there is increased retail interest in the market (albeit still very small participation levels). However, we would advice a healthy dose of skepticism, especially when the over-all mood has turned so positively bullish.
This is not to say that the equity markets cannot/ will not move higher. There is a good chance of the same given the over-all positive outlook. Market valuations are about future perceptions after-all (with reality kicking in only much later!). We would still recommend an allocation to equities. However, investors should maintain their risk-profiles and allocate only within the same. Valuations have stretched beyond all-time averages and the investor should keep this in mind while allocating to equities.