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    Get out or stay put? Investors start to worry as stocks rally loses steam

    Synopsis

    Indian equity benchmark Sensex witnessed a solid 32 per cent jump from its March 23 low of 25,981 to hit the 38,492 level on July 28. It has since come down about 3 per cent .

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    According to Sharma of First Global, investors should be cautious about companies with leverage and having exposure to the troubled sectors.
    “They don’t ring a bell at the top and tell you to get out, but investors shall be hearing something,” goes the saying in the market.

    As Dalal Street starts weakening, with the benchmark Nifty slipping nearly three per cent since last week, investors are looking for cues if the market has begun a long-term trend reversal.

    Indian equity benchmark Sensex witnessed a solid 32 per cent jump from its March 23 low of 25,981 to hit the 38,492 level on July 28. It has since come down about 3 per cent .

    The big rally was attributed to a global liquidity glut thanks to a series of monetary and fiscal stimulus from central banks and governments globally.

    Some market watchers also blamed it partially on a huge influx of new investors, who triggered a sudden surge in flows of household savings into equities.

    These new investors, including the typical get-rich quick crowd, came from among Indians who tried to use their home stay during the pandemic-induced lockdown to create a new income source in stocks. Similar trends were also seen in the markets of the US, Thailand and others.

    Indian depository CDSL reported opening of some 18 lakh new trading accounts during March-May. The number from its peer NSDL was not available.

    Analysts have since been cautioning that Indian stocks have gone up too much, too fast. Those worries have only been accentuated by various agencies repeatedly slashing growth forecasts for the domestic economy, citing a recession ahead due to the Covid-19 disruption.

    The International Monetary Fund (IMF) recently warned investors about a gamblers’ rally in equities globally. It was alarmed that these stock market rallies were ignoring the risks of large debt buildup.

    The Indian economy is in ‘deep trouble’ as its GDP growth is projected to contract 5 per cent this financial year, according to S&P Global Ratings. While some industries may be showing signs of healing over the past two months, private sector confidence remains fragile.

    IMF said the number of active demat accounts is surging just prior to the anticipated deep recession. “So, what’s on the table for market participants?” the international agency asked..

    “The stock market, nowadays, is not a barometer of the real economy. It indicates economic power,” says Shankar Sharma, Vice-Chairman and Joint MD of First Global. He said many large companies have become stronger during this crisis. These have led the market, and that is getting reflected in the indices.

    So, should one shun equity? The answer is clearly no, but with some riders attached to it.

    BSE benchmark Sensex and Nifty are still down by over 10 per cent year to date even after gaining over 35 per cent from their March lows.

    Dalal Street veteran Vijay Kedia says the Indian stock market was getting crowded with get-rich-quick investors, who were resurrected by the nationwide lockdown. He is also skeptical about the current index levels.

    The 50-share Nifty index was hovering above the 11,000-mark on July 30 amid a rapid spike in Covid-19 cases in the country as well as across the globe. The index has slipped over the past few sessions and fell below the 11,000 mark on Monday.

    “The index does not depict the true picture of the domestic economy,” said Kedia, a Dalal Street veteran. “It was led up by a few heavyweights. It fall and rise are actually very deceptive and illusionary,” he said.

    However, Kedia is still inclined to look at equity as the best asset class.

    Many stocks such as RIL, Aurobindo Pharma, Quess Corp, Adani Green Energy, Indiabulls Housing Finance, TV 18 Broadcast, Trident, Adani Gas, IndusInd Bank, Manappuram Finance and Sun Pharma have doubled investors’ wealth from March lows.

    The market is also showing a lot of euphoria in a very risky pocket, the penny stocks, many of which even repeatedly hit their upper circuit limits even though there was no change in business fundamentals. Interestingly, t

    Other seasoned investors, too, are ill at ease over the disconnect between markets and the real economy.

    “We may see some correction in the coming months due to the froth in the US markets and geopolitical issues,” said Delhi-based value investor Ashish Chugh of Hidden Gems."

    “Any correction now will provide an opportunity to build a portfolio for the long term. Rather than worrying too much about Sensex and Nifty, it may be time to focus on individual businesses,” Chugh said.

    According to Sharma of First Global, investors should be cautious about companies with leverage and having exposure to the troubled sectors.

    One should neither put 100 per cent money in equity, nor pull out the entire equity investment. “One should put in only about 30-40 per cent in stocks so as to avoid panic even in the worst of the times,” Sharma said.

    Chugh said smallcaps and midcaps might be attractive pockets to look at, as many companies with relevant business models have been hammered down due to short-term uncertainties and are available at valuations not seen for a long time. But one must spread such purchases over time.”



    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

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    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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