To be honest, the Indian economy is at a funny stage right now. While economists are presenting conflicting views about recovery and the market demand is still on its knees, the stock market is jumping high enough to leave experts in shock. Recently, Sensex crossed the 54,000 mark and Nifty also kept the momentum with its 16,000 benchmark cross.
This unchartered momentum is being closely observed because the assets are already overvalued at the point and we may not want another bubble burst to drown all our growth hopes. Recently, a conversation about the asset-price bubble burst started booming and even though economists present varying views about the timeline of the advance of such an event, there is less confusion about the probability of it happening.
Concisely, the market is at a critical momentum, with the upswing reaching a little too high and there are speculations if the ropes of the swing are about to break. Understandably, banking on our past experiences with the like, everybody is cautious of what follows us, with every step taken with utmost carefulness.
So, the question of the hour is, should you invest in the current market?
Well, it turns out with the given fundamentals, the momentum is going to stay, at least that’s what experts suggest. It is because of the following factors-
The recent monetary policy review came out a day ago and it looks like the Reserve Bank of India is sticking to its stance of trying to boost the anaemic economic growth of the country. This was reflected in their move to keep the repo rate unchanged and revising the inflation targets. This means that the liquidity induced in the country during the pandemic to spur growth is still here to stay.
How is liquidity related to the market momentum? Well, liquidity basically just means higher money at the hands of the people. Since the discretionary consumption hasn’t picked up commensurate pace as yet, the money is diverted into the market, resulting in the uptick in the momentum being witnessed in the markets right now. Since this liquidity is here to say, experts predict that this momentum would stick along for a long while.
The market buoyancy right now is unmatchable and the investor sentiment is at an all-time high. Market players are participating in the market with all fingers in and it looks like with the manufacturing Purchasing Manager’s Index finally crossing the 50.0 threshold last month after much wait, the sentiment has only witnessed an upward tick.
This buoyancy in the markets has been so much so that the foreign investors, who are usually referred to as the skilled ones of the market, pulled back in the fears of the momentum going down have now pushed the money back in since the investor sentiment doesn’t seem like it’s coming down anytime soon.
The foreign portfolio investors have played a significant role in this rise in the Indian equities market. In July, while they had put in a net of only INR 4,600 crore into Indian securities, they had taken out a net of INR 11,300. However, between Wednesday and Thursday this week, the investment from their end has been a net of INR 5,563 crore.
Does this mean the momentum is going to stay?
Market players are coming out as huge advocates of sustained momentum in the light of recent events like liquidity maintenance and investor optimism mentioned above. The earnings of India Inc. in the last quarter which shows numbers higher than expected are also contributing to this sentiment since a sense of economic revival s being drawn in the markets.
Both the secondary markets and primary markets, with a large number of grand IPO openings, have been receiving a hefty influx of money, and even foreign portfolio holders seem to be all in. The pandemic wise situation also seems to be not so bad at this point, considering the lessons we have learnt from the second wave.
Market participants believe that the mortality rate would be relatively less in the third time around if it happens, and the likelihood of a complete nationwide lockdown is too farfetched. Therefore, if mobility continues at a similar rate as we move ahead, it is likely that the market momentum that is created right now would be preserved.
For banks and Non-banking financial institutions as well, the earnings have started returning to normal levels. This further aids the optimism in investor sentiment we have been referring to all this while.
What does the participation look like?
To be fair, the participation has taken a 360-degree turn with the protagonist changing hands completely. From a time when mid and small caps were rallying, with Sensex lagging behind, the battalion is now in the hands of this benchmark index, with large companies leading the crowd. This has been achieved over the period of the last four trading sessions.
As for the sectoral front, as mentioned before, banks and non-banking financial institutions are also starting to perform well, with IT companies holding the reins for quite some time now. The latest financial review released by the Reserve Bank of India revealed that the number of NPAs have not emerged as much as was expected, meaning that this growth in banks and non-banking financial institutions can go on for a longer time.
And for the scope of market capitalisation and opportunities in the sector, with Sensex leading the rally, experts feel the opportunities would be sufficiently present.
So, where should you invest your money?
This has emerged as one of the most prominent questions because it requires you to solve one confusing conundrum. When the markets are performing fairly, strong company fundamentals can be identified easily for long term investment purposes. However, with the market in a position like it is in right now, with almost every company holding a premium valuation, it becomes difficult to find the ultimate deal for long term purposes. That is exactly why the situation looks so fragile right now for the retail investors.
Even with small companies, the risk ratio is significantly higher. Experts suggest going for money allocation in large, mid and small cap funds, in accordance with the asset allocation principle.
“If one can’t do the homework, then the mutual fund is the most feasible way to go. However, if an investor could invest time in digging and doing research, he can do direct investment too. The economy fundamentally looks positive and one can focus on simple known businesses with low leverage. While IT and chemicals and pharma look good structurally, investors can also look at some good companies in logistics and other growth sectors in the mid-and small-cap space for investment,” said Pandey.
What we can infer from this discussion is that even though the economy and the markets provide conflicting outcomes time and again, it’s no secret that the latter is explicitly contingent on the former. The sense of economic recovery is a little confusing at the point, as evident from the deflecting predictions being made by the economists, but the market looks to have taken over the sentiment of optimism, and the improved results from mobility are only adding to it.
It can’t be rejected that this bull party is quite vulnerable in light of the fact that the market valuations are now strikingly high. Hence, any disturbance on the monetary or political front might hurt the players gigantically. As a reference, the current situation is delicate and it is prompted by specialists to remain as wary as could be because there are a lot of variations in what can be expected. Also, if the involvement with the market has revealed to us anything, it is that you can never be too mindful on the lookout. Investing at a high valuation could prompt causes, so it is recommended for retail financial backers to purchase stocks during the revision stage.