Five things regarding the Indian equities market
Five things regarding the Indian equities market
India has managed the tension between inflation and growth admirably; as a result, even if the inflation rate has decreased, the country’s economic development has remained robust.
Due to a number of variables, India’s equity markets have fared impressively during the past two months. India has done a good job of juggling growth and inflation, and as a result, economic growth has remained robust even as the inflation rate has decreased. Contrary to the developed world, India’s inflation rate has never gotten out of control, and despite global concerns, positive domestic news has kept the Indian market afloat. It is only normal for investors to be a little concerned about the future as it gets closer to a new high.
earning capacity
Investors should first consider this new high in the context of Indian companies’ earning potential. For instance, the Nifty index achieved its prior top on October 18, 2021, yet despite profits growth between October 2021 and the present, it has not subsequently produced any appreciable returns. Because of this, the valuation is now lower than it was in October 2021. The market cap to GDP ratio, which once stood at 113%, is currently less than 100%.
Nifty is currently trading at roughly 18.4 times its one-year projected earnings, which is lower than the 23 times seen during the previous all-time high but in line with historical averages. As a result, the market does not appear to be losing momentum in terms of values. Additionally, while local SIP flows have remained constant, overseas portfolio flows have increased significantly.
Rebalancing a portfolio
The second factor investors should think about, especially the conservative ones, is portfolio balance, which could cause the Nifty to sway somewhat at these levels. Rebalancing your portfolio is crucial for financial planning, especially during stock market surges. It is critical to keep an eye on whether, depending on market values, the allocation to equity has dramatically increased.
Increased risk and volatility are indicated by a significant increase in the stock allocation. Investors should therefore think about withdrawing a portion of their winnings and investing in bonds or other less volatile securities. It appears that now is a good moment to start boosting allocation to bonds as the interest rate increase cycles are nearing their end.
Equities exposed
Investors should take into account their equity portfolio’s exposure to growth and value elements as the third crucial factor. Individual stocks, particularly growth stocks, might be overvalued even while the benchmark appears to be well valued. Investors should now reallocate some of their profits from the classic growth equities to value firms. Investors should thoroughly evaluate each stock’s fundamentals.
It may be wise to think about selling those stocks to secure profits if specific stocks in the portfolio are trading at extremely high valuations without adequate support from underlying fundamentals. If an investor has the necessary expertise or time to evaluate firm fundamentals against stock price, comparing stocks with their own historical values can also be a good substitute.
increased income
Equity indices have historically gone through peaks and troughs every three to four years, resulting in times of overvaluation and undervaluation. It’s crucial to keep in mind, though, that stock values typically correspond to companies’ earnings. In other words, the trajectory of the Nifty 50 index as a whole seems to be closely tied to the earnings trend. As a result, there is a good chance that the stock market will grow if earnings keep increasing.
Nifty EPS is anticipated to increase by 14% over the fiscal years 2023 to 2025, and assuming that the index is properly valued, return should be in line with EPS growth. Investors should therefore keep up with their SIPs. One can navigate and even profit from market changes by keeping a disciplined approach and remaining dedicated to his or her investment strategy.
The long term
The sixth and most important factor is to take a long-term perspective on how the Indian economy is performing. India has one of the world’s largest economies that is expanding the quickest. It is advised not to be alarmed by the short-term volatility of the Indian stock market because it is predicted to become the third-largest economy during the next ten years. Although there may be some short-term turbulence, the Indian economy’s incredible resilience and growth story will finally take centre stage.
For Indian equities investors, the next 10 to 15 years are probably going to be among the finest, thus one should stick with it to reap the rewards.
