I believe that the real economic condition of India Inc is not rosy as what is being displayed in official numbers. Unemployment is at record high and people are not spending which is not for survival needs.
The second wave made situation from bad to worse and there is no light at the end of tunnel. But still the markets doesn’t seem to heed the reality. Increasingly there is a disconnect between stock prices and fundamentals. Share price of few stocks moving up or down from their fair value for short term is understandable as punters keep playing in between. But this is going on since the rally after March dip last year.
The “Gurus” had been predicting a correction and suggested to keep cash in hand, but it doesn’t look like we are going to have any major correction.
I ll not go into liquidity & Central bank interest rates etc. although that made a huge impact.
What has happened in COVID period is poor & lower middle class had no cash flows and upper middle class & rich are flooded with cash flow.
Market knows this very well and rerated companies based on who is their customer.
Market is running 6-8 months ahead of economy and expect economy to catch up soon.
8-10% normal corrections will come & go, but if market see something that will delay economy to catch up, we can see a major correction (very low probability as markets are right most of the time)
Can you elaborate on the cash flows with the rich who are the customers of certain companies point? Titan could be termed as such a company, but two wheeler stocks, FMCG have also gained a lot.
Prices of everything will rise, copper etc is already rising
Most labour is taken out of work, output has reduced and price one pays for produce will have to go up as more resources compete for less production. Not to mention money printing has exacerbated the situation.
If all commodities are rising, why should stocks be any different ?
I believe the major reason for the market upturn is due to high savings during Covid. Also, there have been huge inflows from foreign investors due to inflation concerns in US.
Will there be a market correction? I don’t know, but as Peter lynch says “Far more money has been lost by investors preparing for corrections , or trying to anticipate corrections , than has been lost in corrections themselves.”
Just focus on fundamentally cheap businesses and market valuations will not matter.
Well, the primary reason is the extremely low risk-free rate in India. 4% repo and 5% FD rate. If we take a perpetual growth rate of 2%, discounted cash flow model will give you a price earning ratio of 35. Nifty is trading at 27 p/e. Thus when the risk-free rate was 8-9%, index p/e of more than 20 was treated as overvalued. With a risk-free rate of 5%, an index p/e of 27 may not be overvalued.
Covid has also come as a good business opportunity for some industries. Pharma/healthcare is the obvious beneficiary. Packaged food companies were able to sell products on MRP, without any discount leading to better profitability. E-commerce benefitted. The logistics companies are also doing well.
Cheap money being pumped into the economy to arrest the Domino effect and made easily accessible to Financial Institutions. Bail out after bail out of failing institutions being done. Sounds familiar right? A nice facade is being built up.
The question is who will bell the cat, who will call the bluffs? Seems everyone is playing along taking cues from the western world. If someone tries to blow the whistles, he\she is replaced.
I wish we do not mess up our fundamentals because if we do, it will be a bloody mess!!
Disclosure : I am not a pessimist, just a concerned Indian Investor.
Currently there is no concrete reason for the markets to fall. Unless the Fiis pull out in large scale even breaking 14k is out of question. Last March, markets fell due to uncertainty. Currently there is no uncertainty, there is vaccine for corona and there are green shoots in few big sectors which will keep the markets afloat and may scale uncharted heights soon. I always watch these so called big economists calling crash every now and then due to current economic conditions in the country, but i never seen them make money because they are always scared of crashes and high valuation. Remember markets always price based on the future prospects not on the current mayhem we are going through.
The markets are always forward looking rather than looking at the current situation. Although right now the situation looks grim, we as humans are always optimistic in nature. We know that one day, be it one month from now or one year from now, we will come out of this covid situation and when it has happens the economy will rebound in full swing. I believe the markets have already factored the current situation and is already looking at situation beyond Covid and this may be the reason the markets aren’t falling as per fundamental. Other factor also include the liquidity in the current scenario provided by majority of central banks across the world.
Looking forward is ok but ignoring fundamentals is not. High inflation now and earnings barely moved ( looking high now because of low base last year and lower taxation levels before that). Besides at the current rate of vaccination opening up like the US has now will take ages. it’s fed generated hot money flowing across the world. Doesn’t take a genius to spot bubbles across all asset classes including even joke/meme virtual currencies. It’s anybody’s guess when the fed tap stops flowing but when it does a lot of these bubbles will pop. All that printing has consequences. Of course for someone looking shorter term it’s best to ride to momentum. But longer term looks to me valuations are incredibly stretched.
Weather economy is up or down, sensex is 40000 or 55000, i would like to invest in good companies available at reasonable valuation and invest for long terms without timing market.
Markets as it says are supreme… If it will rise or fall as per expectations… everything will become so easy… To pump the stocks to earn money… to dump the stocks to create panic… To buy when stocks about to rise and to sell when stocks about to fall…
I think we all spend lot of time finding out reasons for rise or fall… Like first case of covid when came in India no one thought market can go from 12K to 7.5K…when it was at 7.5K…no one thought it will rise to 15K in next 7 months…
If we cannot predict these huge movements…it’s obvious that it won’t move as per expectations (or on economic developments going on)
I have heard market generally moves first and then economic recovery is followed…this is what are indications…any unexpected halt in the recovery will lead to fall but it will fall before the news comes… There will be economic indicators pointing to the fall…but worst economic indicator will only be out at Market bottom…
There is no point thinking about reasons… We should plan the actions taking into account both probabilities of up and down…
Yes, not every company is unidirectional. There will be some available at reasonable valuations or undervalued. As different people have different outlook and different expectation and have different time frames w.r.t investing, they buy what they see fit.
Bulls and bears make money, if only I could know if there are more number of pigs hence there is a lot of froth and the bubble bursts sooner than later.
As someone said, there is always a bull market in some corner, there will always be fancied stocks, undervalued companies.
If the forces that take the market up and not to be reckoned with, and if Templeton or Lynch cannot predict the market, I should not even think about it and instead have a plan which prompts some action either to buy more, or sell or just observe.
I don’t know about timing the market, but time in the market is certainly useful, but then again even if one has seen cycles, this time could very well be different because in this day and age 5 years are more than enough to bring in a lot of financial, societal and cultural changes and the reasons for the past rise or fall may not exactly be the same, so the time rising or falling markets could be different.
Please pardon me, but I think there is nothing wrong with the Markets. The only thing which seems wrong is the title of this thread (Pls note, I do not have any actual thoughts on the title and the title is perfectly fine - my this comment is more symbolic)
Market has clearly understood its lesson pretty well that the covid waves, though harsh and very very unfortunate for individuals & people, but is temporary for the overall company & business. Prudent investors would not leave opportunity of multiple years ahead for in between blips of 1-2 Qs.
From my experience in markets so far, above thinking of markets is very clear to me. What I missed is the magnitude of the China + 1 change being of structural & fundamental level rather than momentum. Somehow, I had been and still in partial acceptance or in phases of acceptance and unsureity once again. Only time can tell how fundamental & structural that change is for Pharma & Chemicals. I dont mind missing out on momentum plays, however lucrative, but I do mind and strongly mind missing out on identifying structural & fundamental changes. Chemical & Pharma are indeed tougher sector to understand but still that’s no excuse…
With above background, I would still not ask that Whats wrong with Pharma & Chemicals…I would instead ask whats the matter with them and is the matter more momentum based or structural & fundamental…
There is nothing wrong with the title of the thread as there is a clear disconnect between what is happening outside and the market. Market is supreme, the collective indication and direction is powerful, sure, but not every sector is in a structural change. While I do understand certain companies being always traded at a high PE got even more valued now, a lot of other companies moved beyond overvaluation. Liquidity, low interest rates, retail participation, premium quality, whatever maybe the reason.
I don’t remember where I have read the line - markets surprise you when you least expect it. So the question is pertinent and important to many. I too am enjoying the jubilant mood, but I am also concerned as to the magnitude of a fall, if there will be a fall.
Here is EEMA * USDINR vs. NIFTY (in orange line) weekly chart since 2017.
You will see that nifty follows EEMA (emerging markets ETF for Asia). That’s about all you need if you are trading in Nifty for a longer duration (1 month+). You people would do good to follow the Fed than RBI/GoI/Economy of India.
Since this is the asia fund, if there are specific hiccups for India (like war in himalayas), that would be reflected in the inflows; but as of now that has not been the case since 2017. Funny enough, the rise in cases in 2nd wave had little impact, seeing both rise in EEMA and with it Nifty.
(Pls note, I do not have any actual thoughts on the title and the title is perfectly fine - my this comment is more symbolic)