The relentless bull run in stock markets that began from the end of March 2020, crossed a new milestone on Thursday, with the BSE Sensex hitting the 50,000-mark. In afternoon trade, the Sensex was up 327 points or 0.7 per cent to 50,118.81 points. The wider NSE Nifty50 index, too, scaled a new peak, and was trading up 94 points or 0.6 per cent at 14,738.85 points.
For Indians who took to equity investing in a big way last year, the journey has just been up, up and away. Since the low hit on March 24, 2020, the Senex has accelerated 96 per cent, even as the COVID-19 pandemic continued to rage through much of 2020.
“Expectations of turnaround in the economy post COVID vaccinations and continued FPI inflows have led to this kind of gains for Indian markets in a globally low interest rate scenario,” said Deepak Jasani, head of retail research at HDFC Securities.
Foreign institutional investors have pumped in Rs 20,236 crore so far in January; they had already invested Rs 1.70 lakh crore last year. A faster than expected recovery in various economic indicators, strong growth in corporate earnings and several COVID-19 vaccines getting approved have also lifted investors’ sentiments.
What should investors do now? Surely the milestone is a time to rejoice, but also a time to be cautious, say analysts.
“Now there is a flood on the street, everyone wants to invest in stocks. I would advise, just be cautious. The last year has been one of the best years for stock markets. But, to think the market will double every year is a bit unreasonable. Seeing the state of the market and the economy, one can expect around 10 per cent returns this year,” said Anant Ladha, a certified financial planner and founder of Invest Aaj for Kal.
He says he has begun shifting some money from equity to debt and feels one correction, maybe 15-20 per cent from the highs, could be possible.
“Post the forthcoming Union budget, we may witness a temporary break to the uptrend and further up moves from hereon will depend on the pace of economic and corporate earnings growth and the trajectory of inflation and interest rates in India and the world,” said Jasani.
Other analysts, too, are worried over valuations in the near-term.
“As the Sensex crosses 50,000, the valuations do look stretched. The valuations are a function of earnings and earnings not coming through remains the key risk at the current juncture,” said Joseph Thomas, head of research at Emkay Wealth Management.
With the FII flows expected to remain strong for some time as interest rates in most developed markets remain near zero, and earnings pickup has only just begun, some feel that Indian markets will continue to command premium valuations, over their global counterparts.
“While the markets may be expensive at current levels, we believe that Indian equities will command a premium given that we are still in the early part of an earnings recovery cycle. If we look at the markets from a FY23 basis, the valuations appear to be more reasonable at 17.5 times,” said Jyoti Roy, equity strategist at Angel Broking.
He advises that corrections in the market, if any, would be short-lived and should be used as an opportunity to buy shares from a long-term perspective.
In October 1999, the Sensex was at around 5,000 level. It topped 10,000 in February 2006, 20,000 in December 2007 and 30,000 in March 2015. During this period, there have been several booms and busts, like the dotcom bubble burst in 2000 and the global financial crisis in 2008-09. But, markets have always bounced back and therefore, analysts say that in a growing economy like India, where equity markets are significantly under penetrated, investing in markets could reap rich rewards over long periods.
“This growth has come through periods of booms and recessions and across bull and bear markets. So, for investors, the greatest lesson is also the simplest lesson—India has long structural tailwinds that will allow us to keep growing and these trends are far more powerful than shorter term cyclical ups and downs,” said Ashwin Patni, head of products at Axis Asset Management Company.
Nitin Sharma, director research at Fidelity International, noted that since 1986, annualised total shareholder returns stood at 14.9 per cent.
“While the focus will now be on earnings performance and the upcoming budget, the Sensex crossing 50,000-mark does remind you of the power of long-term investing,” he said.