Market at ‘All-time High’, 5 Things you must know before Investing

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The much-awaited milestone of 13,000 is finally here. The Nifty50 surged to a fresh record high above 13,000 for the first time in history to hit a high of 13,133.

The benchmark indices surged 70% from March 23’s low, while the Midcap rallied 73% and Smallcap climbed 83% from the same day as the market could be pricing in expected growth well in advance. Earlier IT, Pharma and Energy stocks were leaders of the rally, now in the last couple of weeks, banking & financials, infrastructure, metals, FMCG and auto stocks were in the driver’s seat.

5 things you must know before investing in ‘All-Time High’ Market

1) FIIs made highest monthly buying of ₹55,552 Crore in November, Highest in the last 20 years.

India seems to be a strong destination for foreign institutional investors to park billions of dollars, especially when the country is on a recovery path with declining COVID-19 infections and the western world is seeing a strong second wave of coronavirus infections. FIIs inflow seems to be unstoppable as they have consistently bought in every session in November. In the current month so far, they have net bought Rs 55,552 crore worth of Indian equities, the highest inflow in a month at least in the last two decades. They net bought Rs 1.34 lakh crore of shares in the current financial year.

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2) Economy seems to have bottomed out

After contracting by over 20% in the June quarter, the second quarter growth expectations are significantly better than that in Q1 with the unlocking mode being on across the country.

Source: Bloomberg

After a stable June quarter, September quarter numbers were better than analyst expectations where upgrades exceeded downgrades.

3) Expectation of Large Inflows from United States

Another major reason behind such a large inflow was the expected stimulus worth trillions of dollars from United States central banks to revive economies that are hit hard by the COVID-led lockdown.

India has consistently been showing improvement in the economy and is expected to get back into green in the second half of FY21 with anticipation of strong growth in FY22, In response to economic slowdown on account of COVID-19 infection, governments and central banks of developed countries announced large stimulus amounting to $21 trillion. As large part of this was done by USA, the US dollar has been weakening since April. This has led to flow of capital from USA to emerging markets, As a result of consistent inflow.

4) The Buffett Indicator:

The market cap-to-GDP ratio, which is also known as the Warren Buffett indicator, compares the value of all stocks at an aggregate level to the value of the country’s total output. The rally has pushed the market cap-to-GDP number beyond 80, much higher than the long-term average of 75%. A value above 100 percent indicates that the market is overvalued while a number close to 50 percent indicates that it is undervalued

But wait, this is not the first time that the 80% mark has been crossed. We have been in this territory several times in the last 15 years though slight correction or consolidation post was seen after that but experts say the momentum could continue. For a country like India, where unlisted businesses form a sizable portion of the economy, Mcap to GDP of 80 is relatively higher than developed economies where listed entities constitute a large portion of the economy. The ratio is more applicable to developed countries and might not reflect the true picture for investors here in India. a big correction was unlikely as earnings are showing signs of recovery.

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5) The Vaccine Hope:

Moderna, Pfizer and AstraZeneca-University of Oxford, all vaccines have shown better than expected results. Regulators gave guidance that the vaccine is effective only when it is at least 50% effective. Pfizer’s vaccine 90% effective and Moderna vaccine was 94.5% effective at preventing disease.

Covid-19 infections appear to have peaked, high-frequency growth indicators are coming in strong, government policy action is beating expectations, and Indian companies are picking up activity through the pandemic.  

Morgan Stanley expects S&P BSE Sensex is expected to touch 50,000 by the end of next year against an earlier target of 37,300 by June 2021 as it maintained an ‘overweight’ rating on India.

Until 50 DMA is above 200 DMA, I am bullish on market and expecting Sensex to touch the numbers suggested by Morgan Stanley, 50,000 by the end of next year.

Invest only in fundamentally strong companies especially who didn’t participate in this bull run. If you need advice on your portfolio you can mail me at info@equityboxx.com.

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Akshay Seth
Research Analyst (SEBI Regd.)
Linkedin | akshay.equity@gmail.com

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Akshay Seth is a SEBI Registered Research Analyst. Has taken sessions on 'Equity Analysis' in IIT Madras, IIT Delhi, IIT Guwahati, IIT Mandi, NMIMS Mumbai. Can be contacted for Stock Advice and Learning Stock Analysis (Fundamental & Technical). +91 8826423141 | info@equityboxx.com
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