NEW DELHI: After a credible budget by Arun Jaitley and a rate cut by the Reserve bank of India ( RBI ), the Indian markets witnessed a breakout, which took benchmark indices to record levels earlier this week.

The S&P BSE Sensex surged to levels above 30,000 for the first time in trade on Wednesday, while the Nifty rallied to a fresh record high of 9119.20. But exuberance on Dalal Street proved to be short-lived as investors and traders opted to book profits amid weakness in other Asian markets.

Closing action shows the real action during the day, market opened with a gap-up and was positive because of repo rate cut, but at last we have seen profit booking and sell off because it has been rallying since last 5 days, says Vivek Gupta, CMT — Director Research, CapitalVia Global Research Limited.

This looks like a normal correction as of now, and investors should maintain their long positions, he adds.

Analysts across brokerage firms remain cautious on the markets at least in the near term, but say the long-term trend still remains intact. Investors with a long-term horizon of over a year should actually look at buying stocks at lower levels, they say.

I think the market may correct in the near term. But if the market does correct and the high-beta stocks correct a little more, we would use that as a buying opportunity in our favourite sectors, says Manishi Raychaudhuri, MD & Asia Pacific Equity Strategist, BNP Paribas. No short-term correction would worry us about the longer term, he adds.

We have collated a list of top five reasons which could weigh on the markets in the near term:

Up to 5% correction in the near term:

The Sensex rallied nearly 1300 points in the past five trading sessions and a marginally profit booking was on the cards at higher levels, say experts. But after seeing over 700-point fall from a record high in the Sensex and nearly 200-point fall in the Nifty on Wednesday, experts see further decline in the markets.

It should deepen from here. My target is at least 5% more correction in the best case scenario — plus-minus 100 points. But definitely, 9100 is the top in the near term, says Sanjay Dutt, Director, Quantum Securities.

This is because the two big recent events — the Budget as well as the surprise rate cut — have already been digested and discounted by the market. We have seen a high of 9100. I do not see any other big event triggering a massive breakout above the 9100-9110 mark, he adds.

Technical factors:

The sharp reversal seen in Wednesday’s session may have further bearish follow up in the days to come. There is some possibility of a bounce back till 8980-9000. However, despite a bounce back there is a high probability of resumption of decline, which can take the Nifty lower till 8740-8680, say experts.

In the immediate term the Nifty would remain susceptible to a swift decline till the time it trades below the level of 9065. Only sustenance above 9065 would negate the short term bearish view, GEPL Capital said in a report.

The market reaction on Wednesday surprised the trader community. But the markets are likely to consolidate first and then possibly move higher.

It is suggesting that the Nifty may not touch the 9,000 mark in a hurry. Possibly, we are still range-bound between 8,500 and 9,000 levels. It is not good news, says Ashwani Gujral, Fund Manager, Ashwanigujral.com.

It is the reaction to the good news which is troubling. If this would have happened at 8,500 levels, the Nifty would have closed at its high. Having said this, given that a rate cut was getting priced in since the Economic Survey chances, we did not sustain the highs post the rate cut, he adds.

No ‘mouth-watering’ valuations:

Valuations for Indian markets at 19.4x on FY15E (16.6x on a rolling one year forward) and 22.5x on CAPE basis are above long-term averages.

The sharp rally in the Indian market to 9,100 has resulted in many stocks going up by 5x. The valuations of most companies are not mouth-watering, says Vallabh Bhanshali, founder and chairman of Enam Securities.

By no stretch of imagination, these (valuations) are mouth-watering. We have seen so many stocks go up two times, three times, four times, five times, he told ET Now.

Analysts are of the view that there is a possibility that 50 per cent of the overall stocks listed on the exchanges will be at the same price or lower after one year.

If you are looking at an immediate timeline — let’s say 12-month forward basis — I would say a lot of good news is there in the price already, says Sanjeev Prasad, Senior ED and Co-Head, Kotak Institutional Equities.