The current stock market levels are synonymous with the old adage— many investors burn their fingers by investing when the markets are at an all time high. The S&P BSE Sensex has gained about 18 per cent in the first half of the year and is expected to go up a lot higher. However, the noise around the index levels being at an all time high is purely based on absolute figures. Let us understand this with an example—just the way Rs 10,000 today will not have the same purchasing power ten years hence (it did not have the same purchasing power ten years ago), the constant mention to indices hitting all-time highs is an incorrect expression of gauging the real worth of the markets.
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Smart investors, who have tracked the past, are not highly perturbed by the rising markets. Going by the average inflow of Rs 4,000 crore a month into equity SIPs, there is no holding back investors from participating in this market rally. “I don’t see any risk at these levels and feel my investments are safe enough,” says Mumbai-based Minu Pandit. A doctor, she is pretty certain about her investments as she has predominantly invested in equities through mutual funds. “It is easy and convenient to invest through mutual funds than directly invest in stocks,” she explains.
She is not alone. Scores of investors in recent years have benefited from the wave of systematic investment plans (SIP) of mutual funds, which have changed the way in which small investors are participating in the stock markets. Regulatory changes and the reducing gains from investments in physical assets have made people view investments in stock markets through equities as an option that they just cannot ignore anymore.
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Rising tide
In spite of the perceived impact of demonetisation, the macro indicators do look favourable for the overall health of the economy. The government is working on several developmental projects which are showing results in some sectors, even as others are turning around. The RBI is obsessively working towards checking inflation and there is surplus liquidity in the market, which is visible in the manner in which market participants are demonstrating their conviction in India’s growth story, which in turn is visible in the performance of the equity markets.
Says S Naren, ED & CIO, ICICI Prudential Mutual Fund: “The government through its policy is trying to rein in deficits by controlling the level of its borrowing from the market, which looks positive.” He further goes on to stress that he is comfortable with the macros as a whole, which he thinks is favourable for the overall economy. By advancing the budget by a month and introducing several policy level reforms, the government has managed to exude confidence among market participants, who are returning the favour, which is visible with the markets going up.
Likewise, the role played by the RBI in sticking to its inflation targeting and not budging from that stand is comforting. “We have the best macros with lower oil prices, lower interest rates, low inflation, a stable currency and lower fiscal deficit,” asserts Sunil Singhania, CIO – Equity Investments, Reliance Nippon Life Asset Management on why the markets are going up. And, he is confident that the country is on the path of a structural growth trajectory, which will last for the next 8-10 years. The buoyant mood in the investment community is palpable.
The rub-off is visible among small investors, who are so far participating in a measured manner. “I believe the stock market is yet to show the best of times to investors in the years to come. Investors like me are positively going to see good days and expect multi-fold returns through equities,” says Mumbai-based, 34-year old Niraj Manek, who has been investing in the markets for some years now and experienced the 2007-8 market rise and crash.
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Manek’s belief will be strengthened if he hears what Harsha Upadhyaya, CIO – Equity, Kotak AMC has to say. “We are in the initial stages of revival in economic growth rate. We believe that the initial improvement will be driven more by consumption and gradually we will see improvment in investment cycle,” is Upadhyaya’s opinion. The gradual improvement of the investment cycle is being strengthened by the government’s own spending in infrastructure development, before the momentum will set in for India Inc.
The global oil prices continue to remain steady, which reduces the impact of our import bill. There is also less volatility in the global markets, which augurs well for India. “The US Fed will be well measured in tightening and, both the US and Euro zone are seeing improvement in growth. India’s inflation and deficits are under control and visibility of earnings is improving,” explains Mahesh Patil, Co-CIO, Birla Sun Life AMC. Yet, valuations are a cause of concern, which is not overly stressing the fund management community for now.
