Get Ready For Sharp Selloff In Sensex, Nifty: Sanjeev Bhasin

Indian stock markets are likely to witness a sharp correction in September, said Sanjeev Bhasin, executive vice president (market & corporate affairs) at domestic brokerage IIFL. Talk that the Federal Reserve might be serious about lifting US interest rates as early as next week could hit equities in the short run, he added.

"The Nifty has rallied almost non-stop from 7,940 on June 25 to near 9,000 on September 8, returning over 13 per cent, amid post Brexit rally, which saw global liquidity chasing higher delta," Mr Bhasin said.

Bond yields in the US touched all-time lows at 1.42 per cent, while stock indices hit all-time highs and even gold has hit almost 3-year high, he added.

"These three asset classes have never ever historically in the last 30 years moved in tandem more than three times and hence sustenance may not persist," he said.

According to Mr Bhasin, the European Central Bank set the ball rolling by indicating that there will be no bond buying after March 2017. The ECB's decision saw bond yields across the globe harden in the next 48 hours, he said. Global risk appetite has also been hit, following North Korea's testing of nuclear missile last week, he added.

"September historically has been a game changer for the US indices on the downside with corrections being sharper than expected," he said.

According to Mr Bhasin, domestic investors had become complacent, which is evident with the put call ratio trading at 1.18, indicating extremely bullish sentiments.

IT stocks, normally good defensive bets, are unlikely to help markets as they are under severe selling pressure, he said. Telecom stocks are trading at 52-week lows, adding to overall weakness, he added. Markets were looking frothy, with consumption and bank stocks touching new highs on the back of higher spending with no real change in earnings, Mr Bhasin said.

"Till now corrections have been very shallow and foreign investors have been buyers daily. Any exit from them on a larger scale will see pressure on the rupee and high impact cost on stocks and index," he added.

Mr Bhasin said high valuations have further heightened the possibility of a big selloff in domestic equities.

"The Nifty had run up too much in too short a time and was now trading at almost 24 times price/earnings multiple which would definitely be expensive in the emerging market basket," he said.