The rally in the Indian markets has been remarkable, and the markets are expensive. The rally is of high quality, but speculations have started.
At the beginning of 2020, nobody predicted that this would be the scenario of the stock market. Even at the end of 2020, after the strong recovery in the markets, it was unpredictable to say that the rally will remain strong for 2021.
There is an unprecedented social and economic impetus. Companies are raising enormous amounts of debt, their profitability is rising, and the private markets have plenty of cash.
The increase in retail participation, market activities and higher valuations is because the interest rates are going down, and people are not earning good returns from fixed deposits. Thus, people have started fueling their savings in the equity markets as an alternative source of income. But the valuations are not at all cheap.
So, if people are now thinking to invest in markets to earn returns that others had received during the 18 months, it is unlikely to happen. Investors can get a positive return, but the momentum would not be as good as the one that was during the pandemic. The likelihood of the returns that one experienced a few months ago is limited.
If people are looking for a long-term investment, then they need to understand the opportunities available. The current environment is not the easiest to predict because the stocks are expensive. Investors need to assess the risk and understand the potential events in the economy.
Inflation is a factor that one needs to keep a watch on. Although it is within the RBI’s range of 2-6%, if inflation starts to move up, it could impact the returns that won’t be positive.
The concept of stakeholder capitalism is gaining importance in the world. The companies need to provide long-term value and return to their shareholders and stakeholders like customers, employees, communities, etc.
In India, companies are providing good returns to the shareholders and the community. It is because businesses operate in society and have an impact on the community.
Moreover, investors have started to ask what are the prospects of the company. Globally, the companies are focusing more upon the ESG stand.
Liquidity is an essential factor, and it is the main reason for a company’s stellar performance. The earning multiples are rising because the quality of earnings is higher than the pre-pandemic levels.
Stick to quality names. The quality companies that are generating earnings are demonstrating meaningful growth. It is because the markets are not cheap, and some speculations have started.
India remains a long-term investment option for a lot of foreign investors. The allocation for India in emerging markets funds has moved to 10% from 8%, showing positive signs. But the pace of reforms has not met the ambitions, which slows down the enthusiasm for investing.
India’s economic moves towards privatization are in the right spot, and India is in a better position than it was a decade ago.
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