(* Image source The Financial Express)
The Nifty50 has finally managed to score the magical figure of 10000 on Tuesday’s opening trade cementing its stronghold as Asia’s top performing stock market indicator. The national index took four months since closing at 9000 in March earlier this year to climb up the thousand point’s ladder. But with the Nifty boom, D-street gurus are becoming extra cautious and urging investors to be the same with their respective investments.
Since closing with a flattish note in 2016, the Nifty has rallied 22% till now in 2018 causing the economy to expand at seven times the pace of Japan. The same could not be possible without certain fundamental factors underlying the market dynamics like:
- A cumulative inflow of 25 billion USD since January and 5 billion USD alone in the month of July from overseas investors.
- Strong currency which gained 5% in the current fiscal when compared to dollar, stable macros decreasing both fiscal and current account deficit along with political stability making India a goldmine for global investors.
- Expectation of a cut in interest rates with RBI monetary policy review knocking at the door.
- Paradigm shift of investors towards financial assets to park their corpus with the moderation in price of property and gold since the roll forward of demonetization practices by Prime Minister Narendra Modi.
- Good monsoon which ushered in happiness amongst the rural economy.
With all said and done, the next thing on everyone’s mind is whether Nifty can adhere to its growth momentum and grab on a few more points or will it go down the ladder just as quickly as it climbed up! Here are some pointers:
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- Market experts feel that Nifty will get pumped up further on the wings of fundamental factors like recovery in corporate earnings. According to the top bosses, investors should stay put despite the tempting option of cashing out as the market will surely yield more in days to come.
- Potential for large cap bullish investors look significantly on the higher side compared to small and midcap ones with massive growth trajectory expected in the coming 3 to 5 years of their holding.
- A whopping 24000 crore INR have been invested by Domestic institutional investors in Indian stock market till now which is expected to continue with further purchase of mutual funds by retail investors.
- Although the trends of early earnings look positive, there is widespread apprehension about the effects of GST implementation in the first quarter of this fiscal. Destruction of goods held in company supply pipeline and lowering of inventories is a direct result of transition to the new tax regime.
- We cannot completely rule out an intermediate correction of the bull market but keeping in view the money waiting on sidelines, an early recovery is most likely. Investors need to focus on buying quality stock on declines. Correction of 5-10% should be taken up as a signal of focusing more on the equity portfolio.
- To be in its growth track, the liquidity driven market needs to cling to its current earnings support with massive improvements shaping up both in the corporate and macro levels.
- With Nifty trading at approximately 18 times of its expected earnings in the coming one year, Indian markets are surely jumping onto the expensive category.
The market will show phenomenal growth if viewed from a 12 months perspective, but the occurrences of past 2-3 years should not be extrapolated. Coming months can bring along even more challenging scenarios. After all the Nifty bubble is just a small piece of a bigger jigsaw waiting to get solved with time.
