Déjà vu? Jefferies rings warning bell on market rally

It has mostly been a one-way street for markets that have moved up sharply since July. The front-line indices - the S&P BSE Sensex and the Nifty50 - have gained 6.7 per cent and 7.3 per cent, respectively, in the past three months.

- PUNEET WADHWA

The rally in mid- and small-caps has been sharper, with both indices surging 14 per cent and 9 per cent, respectively, during this period.

This sharp run has made analysts at Jefferies cautious. They suggest the current uptrend in equities may not last long.

The information technology sector (IT), believes Jefferies, remains at significant risk of sell-off if the Nifty was to correct.

As a tactical strategy, they have moved some of their allocation from the IT sector to staples, expecting the latter to be a defensive bet in the event of a market correction.

Also, they have replaced Godrej Properties (more volatile) with Macrotech Developers in their model portfolio.

Here are some key reasons why they have turned cautious on the current rally:

Bond yield, earnings yield gap: Expensive valuations, wrote Mahesh Nandurkar, managing director at Jefferies, in a report co-authored with Abhinav Sinha, is not a new phenomenon in Indian markets.