BackMarkets continue to defy gravity on rising risk appetite, but stocks are pricey
The next few weeks will be critical to watch. The market has made phenomenal gains against all odds, thanks to the global liquidity, and the increasing risk appetite of investors.The markets appear to be heading into resistances as investors may want to cash some chips as the end to 2020 draws closer
PremiumMUMBAI : Indian stock markets have been a tearing hurry in the past month with indices continuing higher in uncharted territory. The Nifty 50’s all-time high on Friday shows that investors may be taking more risks as stocks continue to drive higher.
Sure enough, the liquidity taps are flowing well and fuelling the gains. Since November 1, the Nifty 50 has gained a whopping 16%, while the Nifty Mid-cap 100 and the Nifty Small-cap 100 jumped 20% and 17%.
This November has been among the best months for equities, with more than 90% of listed stocks making gains. Several stocks not part of indices made some phenomenal gains. But note that this is a huge jump in an already overheated market.
The economic recovery, though, maybe a reason for the enthusiasm. The Index of Industrial Production has swung back well with growth at an eight-month high.
But it could still pay to be cautious. The markets appear to be heading into resistances as investors may want to cash some chips as the end to 2020 draws closer. Besides, the holiday season sets in next week abroad, so this would be the last busy week for foreign investors this year. Domestic investors may have to step up purchases quite heavily to keep the momentum going.
The markets are also trading at a rich price-earnings multiple of 23 times one-year forward earnings as per Bloomberg consensus estimates. These one-year forward valuations are about 500 basis points higher than pre-covid highs. The resurgence of covid-19 cases in global markets, particularly the US, may just offer another reason to take out some of their gains.
It seems some domestic mutual fund investors may be doing that. While the markets are scaling new peaks, mutual-funds have pulled out about ₹13000 crore from equity funds in November.
Nevertheless, domestic liquidity is still quite good, which is a positive. While retail inflation is running high, the post lockdown recovery is firming up, so RBI may keep rates lower for some time.
Last month’s pharma sales data has been disappointing. Covid-19 drug sales, however, have been doing well.
With the Burger King IPO receiving a huge response, the line up for new IPOs is getting longer. One such is Flipkart IPO. The company has got a huge lift due to the e-commerce boom, post the lockdown.
PSU Bank stocks, though, have started to rise.
Coming back to the markets, the next few weeks will be critical to watch. The market has made phenomenal gains against all odds, thanks to the global liquidity, and the increasing risk appetite of investors. But there was high volatility in the Nifty Bank index the last week.
Besides, some of the smaller stocks that have been hit badly by the pandemic are also seeing high speculative exuberance, which is not quite healthy. That should also keep investors on their toes.
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