Title : Why is the market rising ?

Abhay : Hi Sameer, my first question to you is that…..after sharpest crash ever recorded in March, the stock markets are rising like crazy. Do you make sense of it?

Sameer : Actually, it is a strange place to be in.
There is total disconnect between the real economy and stock markets…not just in India, but worldwide.
The euphoria in stocks is up against the bankruptcies and unemployment in the real world. It is strange but it is not the first time it has happened.

Abhay : So, if it has happened earlier also, what has been the outcome of those events in general?

Sameer : Almost every time, the stock markets fall back to fundamentals which is real economy. It falls back to its realistic valuations sooner or later.
I think we need to acknowledge that the current disconnect between the financial markets and real economy is the wildest of all times. But as always, the markets should come back to its intrinsic value sooner or later.

Abhay : My next questions is that, where do you see the intrinsic value for SENSEX ?

Sameer : According to our calculations, Sensex between 28000 to 30000 level is a comfortable zone.

Abhay : Would you then say that we should exit the market now and enter when it is the right level?

Sameer : It will not be appropriate. You should stick with your asset allocation model.
But if you are over exposed to equity portfolio, and don’t have other liquid assets for next 1-2 years, then may be you should try and reduce the equity exposure at current levels.
Also, for those going through a FOMO (Fear of Missing Out), I would say that one should be cautious and patient with money under current circumstances.

Abhay : For every market rally, there have to be more buyers then sellers. So, who is driving the markets at present? Is it Institutions, or HNIs or Retail ?

Sameer : As per the inputs we have received, Institutions and HNIs are actually playing cautious. On the other hand, retail investors are very actively trading in the current market.
New set of investors have thronged the market during lockdown. March 2020 was the best month of last 12 years in terms of new dmat accounts opened.
The retail investors’ trading volumes in April & May on NSE was up by 56% and 45% YOY. When I read foreign media, I read that in Singapore, retail investors are borrowing to invest in stock markets, since the loans are very cheap (near zero interest), and the stocks are available at substantial discounts to peak.
In US, I read that retail investors are deploying surplus liquidity created by FED into complex and dangerous derivative linked investments.
Just yesterday, MARKET WATCH wrote that retail investors have simply forgotten the COVID19 pandemic. They are in fact the most bullish set of investors.

Abhay : So, when retail investors gets bullish, we shall get cautious. Right ?

Sameer : Yes. History suggests so. Retail investors are always late to enter in the cycle and at wrong time.


By Sameer Rastogi

18 years of experience, PG in Finance and has delivered Wealth Management lectures at IIM Lucknow, IBS Gurgaon and IIPM Delhi. Contributed to various newspapers. Strength – Application of Economic fundamentals to Investment

Leave a Reply

Your email address will not be published.