As the chart below shows market is currently trading slightly above long term trend line established since world came out of the 2008 financial crisis.
Source: BSE
Chart shows that since 2008, Sensex is growing at a CAGR 9% much lower than its post 1991 liberalization rate of 12%. This could be because earnings growth is poor or market is taking a slow approach after massive rally from 2003-2007. thanks to liquidity injection from US Fed, global markets have settled for a slower growth than a sharp pullback followed by normal growth.
Since we are trading slightly above trend line, I will be cautious in buying and will buy only on dips. Buying above trend line means your expected returns will below trend growth rate which is already low at 9%. This trend growth rate does not compensate for additional risk over fixed income securities. I will be cautious in building diversified portfolios as these are likely to produce average return with above average efforts and buying expensive stocks as valuations can shrink.
Small and mid caps have corrected much more than large caps and few are available at attractive valuations. List of stocks mentioned here hasn’t really changed and I continue to buy but only at new 2018 low.