Well since 2020 the Indian markets did not witness any major correction except June 2022 when the Nifty touched the lows of 15200 levels. The market has surpassed those levels and is now heading towards 25000 levels. The biggest point which I have kept on repeating many times is that every high level of the market has also increased the base level of the market. The current base level will be within the range of 20000-22000. But the biggest question is when the markets will fall. The market is discounting every bad news and the same is being reflected every day, every month.
In the initial two months of FY24, Foreign Portfolio Investors (FPIs) divested $4.10 billion from Indian equities, primarily due to political uncertainty and an increasing VIX. Their equities sell-off accelerated sharply from $1.04 billion in April 2024 to $3.06 billion in May 2024.
In calendar year 2024 so far, FPIs have shown a net buying interest of $10.84 billion. Year-to-date in 2024, FPIs purchased equities totaling $(416.89) million and were net buyers in the debt market by $10,423.99 million. During the first half of 2024, net inflows into the debt market comprised 96.2% of the total FPI inflows into India, underscoring a less-discussed aspect amidst the focus on equities.
As of June 28, 2024, FPIs remained net sellers in the secondary market equities amounting to $(3,875.52) million, although their investments in IPOs partly offset this with purchases totaling $4,292.41 million.
The current Nifty P/E as on 1st July 2024 is 22.9 which can be called as moderate and not expensive neither cheap. On the other hand, if we look at the maturity of the Indian markets, we find that the number of trading days for every new highs is getting narrowed down.
1. 0-1,000 (333 trading sessions)
2. 1,000-2,000 (2,819 trading sessions)
3. 2,000-3,000 (513 trading sessions)
4. 6,000-7,000 (1,608 trading sessions)
5. 9000-10,000 (592 trading sessions)
6. 20,000-21,000 (60 trading sessions)
The Nifty-50 Index appears to be fairly valued when considering historical valuations and bond yields. However, many other sectors in the market are trading at rich valuations, having undergone significant multiple expansions over the past 2-3 year. Hence funds will move out from few sectors and will shift into new sectors based on the allocation of the Union Budget. Well don’t have to do crystal gaze about identification of sectors since we should all know that global trade is getting back to its old times and hence India will focus on manufacturing. At the same time government is planning on large investments from its own pocket as well as encouraging the private players through PLIs. Hence flight of capital and investments will flow towards these sectors.
Further as more allocation comes to PLI and as more focus grows on manufacturing segment we will find more opportunities for MSMES which in capital market terms is being called small caps and midcaps. Looking at the journey of the Midcap index alongside the Nifty's 24000 mark, we observe that the Mid-cap index has rebounded by 55.55% from its year's low and is currently just 0.34% shy of its 52-week high. Over the past year, the Nifty Mid-Cap 100 index has delivered robust returns of 56.91%, significantly outperforming the Nifty's returns during the same period. Hence the budget allocation will give new direction to the segment .
The 1st quarter results will play big role behind the market directions and profit booking followed with exit from few sectors cannot be ruled out which will give the market some correction. But the correction will be short lived since investors sitting on cash will jump as soon as the Indian markets goes for price or time correction.
If we look at the Mutual Fund segments we find that in 2024 calendar year around 117 new fund offers (NFO) have been launched so far in 2024, of which 94 mutual fund schemes are available for investment. Around 27 index funds have been launched in 2024. Around 24 ETFs have been launched in 2024 so far, out of which 21 schemes have been in the market for more than one month. Only in the month of June its being found that around 10000 cr have been collected through NFO. Hence all these index funds are also getting the market into new highs.
Apart from this PMS and AIF inflows remains unaccounted hence that inflow is also significant for the market. I am also not taking into account the ULIP’s, NPS, Guaranteed Insurance products linked with equity market into the inflows in the market. That amount is also high.
The capital market is playing a pivotal role in the elimination of poverty levels. Over 42 lakh new demat additions in June; total demat accounts cross 16 crore. Currently Indian households’ equity investments is around 5% which is heading towards 6% hence we will find more investors joining the market. Just imagine if by March 2025 we add another 1cr Demat Account holders in the market then where the market will scale up.
Correction does not mean Index correction but individual quality stocks since that is the place where the funds get allocated. We need quality stocks and quality price (not cheap) for wealth creation. The market is not leveraged as it used to be historically under the tag line of Margin Funding but yes will be keen to see how the new breed of investors behaves when there is any correction like the ones Indian equity market have witnessed – Black Friday and Black Monday types.
Coming back, waiting for correction is baseless when the vision for wealth creation is long term. Sitting on cash is not a wise decision nor is taking a harsh call of investments. Let the money management be done by your Non-Greedy Financial advisor. In my next article we will come up with what we mean by Non-Greedy Financial Advisor.
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