Stock market
India’s stock market, Sensex, has registered a rally of about Rs 72 lakh crore with a great jump of 12,000 points in the last three months. But this speed has also regretted those investors who have cash. At the same time, Tej has created a gap between valuations and fundamentals. Experts say that the market has been above its capacity, so there is a threat to valuation.
During this period, the total market cap of all companies listed in BSE has increased by Rs 72 lakh crore to Rs 461 lakh crore. The main reason behind this rally is to get more money in the market. Domestic and foreign investors have fiercely put money in stocks. Domestic Institutional Investors invested Rs 3.5 lakh crore, while foreign investors have also been net buyers for three months. According to Venkatesh Balasubramaniam of JM Financial in the ET report, this rally is going on liquidity. Mutual funds had a cash of Rs 2.17 lakh crore in May and more than Rs 26,000 crore is coming from SIP every month.
Cap between Valuction and Fundamental
However, this speed has created a gap between valuations and fundamentals. Analysts are warning that large cap, mid cap and small cap are all traded above their average valuation. Nilesh Shah of Kotak AMC says that the chances of repeating the returns of the last five years are less. The market is now fairly valid or slightly overwell. Return will now depend on earnings growth, which can remain within the range of 8–12%. Shah advises investors to diversify in reits, invites, date mutual funds, gold and ETFs in addition to equity.
In which sectors to invest?
RBI’s recent rate cut and CRR deficiency have promoted liquidity, which has benefited the financial sector the most. Krishna Appala of Capitalmind PMS says that lower interest rates are good for banks and NBFCs and also credits growth is still strong. Karthik Johngadla of Quantus Research says that there is a good chance in infrastructure financials like PFC and REC. The PSU bank index is also at six months high.
Vigilance needed between growth
There is a possibility of growth in the market, but it is necessary to be cautious before Tariff Deadline and Q1 Earings of July 9. Technology stocks, which lagged behind this year, are now drawing attention due to attractive valuations. Atul Bhole of Kotak Mutual Fund says that large stocks are giving 2-2.5% dividend yield in the IT sector. If business bicycle is normal, it may increase spending. The chemical sector also shows signs of recovery after two years of decline. Bhole says that prices are now stabilizing and there is a good opportunity to invest in selected chemical stocks. However, due to the uncertainty of US tariffs, care will have to be taken in export-oriented pharma and chemicals.