Correction! This is the new talking point in the market. Everyone is hoping that it will come sometime soon. However, like the elusive Scarlet Pimpernel, no one knows for sure when and where it will come. Everyone is hoping and waiting for the correction, including the 42 lakh newbie investors who opened their demat accounts in June. While it is an exercise in futility to second guess the market’s movement, one view is that the budget will provide an opportunity for the much-desired correction to make its appearance. Everyone is expecting a good budget, and there have been enough indications prior to the budget that their hopes will not be belied. In which case, it would be fair to assume that there would be some profit-taking post-budget. If some of the proposals presented by the FM, Nirmala Sitharaman, do not go down well with the markets, as is bound to happen since the FM cannot please everyone, there is likely to be some selling from these disgruntled investors. The point is that in either case, a good, bad, or ugly budget could be followed by a fair amount of selling in the aftermath of the presentation. The good thing, however, is that corrections in a bull market are quite short-lived and may not last for more than a few days. Sunil Singhania, founder of Abakkus Asset Manager LLP, says: “In a lot of sectors, the correction is long overdue. I have been anticipating it over the last month. In sectors like defence and railways, valuations are clearly stretched. Traditional valuation metrics are not in sync with the current prices. Many PSU defence stocks, as well as railway stocks, are valued at 10-15 times sales.” Abakkus manages AUM of Rs26,500 crore across various schemes focusing on alpha generation (beyond the normal returns provided by the benchmark index). “I am not bearish,” adds Singhania, saying that despite good businesses, valuations are crazy. Singhania does not feel there will be any deep correction but expects up to a 5 per cent dip in Nifty. As for the budget, he says a correction is unlikely unless there are changes to the capital gain tax, which seems unlikely, markets may not react adversely. There are so many funds with investors that no correction is likely to last more than a few days. Indeed, there is such a fancy for defence stocks that thematic funds in this sector have grown more than 150 per cent over the last year. HDFC Defence Fund has stopped lump-sum investments in the fund, with only SIPs being permitted, and that too at a maximum level of Rs10,000 per month only. Motilal Oswal Defence Index Fund, NFO, which closed in the last fortnight of June, saw a collection of nearly Rs1,700 crore. Nifty India Defence Index has nearly doubled in value over the last year. The fund tracks 15 PSU and government companies. Currently, there are just 50 companies in the defence sector. Some others in the private sector have defence as a sector in their company. As such, the floating stock of defence companies’ paper is low.
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Over the last 26 years, the Sensex has gone up 21.3 times