As the markets are scaling new highs, investors are evincing interest at the market top. Even fund managers are setting upward targets for the equity market rather astoundingly and they all seem to be getting in rat's race, one following the other. Today, the reach of mutual funds is mainly restricted to top 15 cities, as fund houses recognise where the appetite for equity investing lies. But what they forget is, to wisely educate investors, which in turn would help their Assets Under Management (AUM) grow as more people will invest and stay invested in mutual funds.

Now that market sentiment is bullish, many experts including fund managers are giving upside targets. Some of them see S&P BSE Sensex hitting a 31,000 mark by March 2015. In June, mutual funds bought equities a little over Rs 3,300 crore - the highest monthly net purchases since June 2008 - as they are exuding much hope of growth and fiscal discipline in the ensuing full year budget (which will be presented on July 10, 2014).

What according to fund manager may drive further up?
Well, they are optimistic that…

• The Government will continue to announce policy reforms which may keep the markets up
• Government may aggressively divest its stake from Public Sector Undertakings (PSUs) and use that money for investing in developmental projects
• The Government may rationalise subsidy structure
• The Government may simplify the process of clearance needed in setting up of projects, which in turn would attract more Foreign Direct Investment (FDI) in green filed projects
• The Government may take favourable decisions on fiscal consolidation, GST regime and improving the performance of public sector banks
• While valuations are may not be cheap, if one considers Market Cap-to-GDP ratio they are not expensive and there is steam yet
• Given that relatively stronger position of India, foreign investors would continue to invest in Indian markets
• Domestic investors including retail investors may stay bullish on markets
• Corporate growth would be strong as economy is expected to revive
• Cyclical sectors may do better
  
  

You see, some in the Indian asset management industry also expect the S&P BSE Sensex can double from current levels within next 3 years.

So would be wise to gung-ho?
PersonalFN believes although almost all the predictions given above are backed by some number crunching, they appear to be extremely optimistic. At present the Government is having tough time in managing fiscal deficits. Inflation is another big worry. Weaker monsoon is posing a challenge for the Government. Also, the sectarian tensions in Iraq, poses a risk of crude oil price to boil, which would implications on Current Account Deficit, India rupee, inflation and even fiscal deficit (if the Government keeps oil prices unchanged at the domestic level.)

At present, the Government has deferred its decision to hike gas prices by three months, but the increase in prices of petrol, diesel and non-subsidised LPG cylinders is expected to have a detrimental impact on fuel & power inflation. During such times, the Reserve Bank of India (RBI) would continue to maintain its vigil on inflation, and thus bolstering economic growth may get delayed. And probably taking cognisance of these issues, the NDA Government has premeditated a '2+3 formula', wherein they have stated that they would take 2 years to set right the path of fiscal consolidation and thereby build a base for rapid expansion in the following 3 years. But as said earlier, it is going to be a challenging time for the NDA Government to deliver.

PersonalFN is of the view that, there is no need for you to get over optimistic with such bullish targets. Going gung-ho and investing all your money at market top could turn to be imprudent as the margin of safety seems to have narrowed down. And mind you, it would be an absolute disaster for you to break fixed deposits and invest all your hard earned money in stock markets right now. Nevertheless, if your risk appetite permits and if your asset allocation calls for you to invest in equities, staggering your investment would be a prudent approach while taking exposure to equity. You shouldn't buy aggressively, rather buy selectively. Thoughtlessly investing or speculating can be hazardous to your wealth and health. You see, don't allow history to repeat itself, where in the aftermath of 2008-09 investors burnt their fingers and opted to sit out of the market nearly for 5 years. Following momentum and falling for bullish index targets is something that you should completely avoid.

Those who need money over short-term, say in a year's time would be better-off staying away from investing in equities.

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