April month saw Sensex trading near its all time highs. However, mid and small caps continue to trade at more than 15% discount to their all time highs. While the valuation of large cap looks over-stretched, mid and small caps look a bit under valued. This is a kind of divergence which is pretty rare to see. Other flavour of the season are the general elections. There is always a risk of market instability due to any adverse outcome of the elections. Markets do not like uncertainty. As long as there is a stable Government at the center, we don't anticipate any adverse impact on the markets. However, if there is a weak Government that is formed at the center, there is a possibility of markets going down in the short term.

After a 9 month downward journey, equity markets were quick to recoup all the lost ground. Markets rallied by more than 7% in March. The Sensex and the Nifty are at the record highs now. The main reasons for this rally were strong inflows from foreign investors, hopes of a stable government at the centre, a rise in rupee against the USD, and expectation of a rate cut policy in April.

The Union Budget 2019 clearly focused on the middle class, farmers and small traders. It will be an income boost to the middle class and farmers. For the salaried class, the full rebate for the individuals who have income up to 5 lakhs is a step in the right direction. This will have a positive impact on the economy since lower middle class will have more cash to spend for their consumption. Tax relief for middle class and extra income for farmers is positive for consumption-related business, automobiles, FMCG and Pharma.

2018 was an year of consolidation. On one hand the large cap index touched record highs. On the other, mid and small cap corrected significantly. It was an year when the rupee depreciated to its lowest value. We saw crude prices rising substantially throughout the year before crashing in the last two months. 2018 was also an year of regulatory changes. The substantial changes in the mutual fund industry were the re-categorization of the mutual funds and the introduction of 10% tax on long term capital gains. This resulted in a deep correction in the mid and small cap space.

After three months of correction, Indian markets got a much needed breather in the month of Nov. Recovery of rupee against the dollar, fall in oil prices and improvement in liquidity were the positives that helped the markets stage a recovery this month.

Smart investment strategy for the current market condition: During the last one year, market valuations have become more reasonable. Some pockets like Small caps have become undervalued as compared to their historical averages. While, there is a possibility for the markets to go down further in the next 6 months,  it is almost impossible to time the markets perfectly. Hence, in the current scenario, it is prudent for an intelligent investor to continue on the path of disciplined investing without getting panic. You should ensure that your asset allocation is maintained as per your risk profile. Kindly take help of your dedicated Financial Advisor to re-balance your portfolio during your reviews. This will help you to buy at current prevailing lower prices.