5 reasons for ongoing rise in Indian equity market

Jul 27, 2016,
Updated Jul 27, 2016 4:29 PM IST

Mahesh Nayak, Senior Associate Editor, Business Today

Every time when the equity market rises text messages start hitting my mobile inbox advising on buying stocks and profiting from it on an intra-day basis. Second, personal finance guys start calling to give their advice to invest in equity market by picking direct stocks or mutual funds and third people start coming to you for advice on where to invest. When such uncommon things become common in your daily routine the first thing that comes into mind is has the equity market peaked and is a sharp correction underway? For the past one week these uncommon things have become a part of my routine and has made me wary about the Indian equity markets, which has seen both the BSE Mid-Cap Index and the BSE Small-Cap Index continuing to hit its new all-time high while the broader BSE Sensex still some 2000 points away from its previous all-time of 30,024 that was touched on March 4, 2015. Despite being wary about the rise in the Indian market where stock valuations is no way cheap, the party is going to continue because of these reasons. 1) The rise in the Indian market is not a domestic phenomenon but a global phenomenon. The rise in the Indian equity market is comparatively much smaller than its peers in the emerging market. Year-to-date, the MSCI India Index has gained barely 4 per cent, which is better-off than China, Mexico, Greece, Turkey, Poland and Egypt. But, compared to markets like Brazil, Thailand, Philippines, Taiwan, Russia and Indonesia which have gained anywhere between 10 per cent to 56 per cent the rise in Indian Index is smaller. There are expectations that the world markets will remain firm until the US presidential election and US isn't expected to raise rates in the near future, at least not in 2016. This indicates that easy liquidity is still expected to float in the global market which would augur well for emerging markets including India.
2) Low yielding asset other than equity including debt, commodities, gold and real estate will keep interest towards equities.

Advertisement
3) Concerns over Chinese economy making a hard landing fading away.
4) Markets do not expect the Brexit to have a huge repercussion on the Euro-zone and countries in the EU looks to remain united.
5) Apart from global factors, strong domestic money flow also keep the party going. Domestic mutual funds investment through systematic investment plan (SIP) is seeing Rs 3,000-3,500 crore coming into equity market and another Rs 500-1,000 crore is coming from employee provident fund (EPFO). Both augur well for the Indian equity market. Historically easy liquidity in the system has overpowered fundamentals and therefore market may have legs for scaling higher, and with market being in uncharted territory staying put would still be the best option. While getting carried away becomes easy when one sees stocks especially in the mid and small cap space scaling new highs, it would be advisable to stick to frontline stocks which are generating positive cash flows rather than getting trapped in penny stocks.

Advertisement

Mahesh Nayak, Senior Associate Editor, Business Today

Every time when the equity market rises text messages start hitting my mobile inbox advising on buying stocks and profiting from it on an intra-day basis. Second, personal finance guys start calling to give their advice to invest in equity market by picking direct stocks or mutual funds and third people start coming to you for advice on where to invest. When such uncommon things become common in your daily routine the first thing that comes into mind is has the equity market peaked and is a sharp correction underway? For the past one week these uncommon things have become a part of my routine and has made me wary about the Indian equity markets, which has seen both the BSE Mid-Cap Index and the BSE Small-Cap Index continuing to hit its new all-time high while the broader BSE Sensex still some 2000 points away from its previous all-time of 30,024 that was touched on March 4, 2015. Despite being wary about the rise in the Indian market where stock valuations is no way cheap, the party is going to continue because of these reasons. 1) The rise in the Indian market is not a domestic phenomenon but a global phenomenon. The rise in the Indian equity market is comparatively much smaller than its peers in the emerging market. Year-to-date, the MSCI India Index has gained barely 4 per cent, which is better-off than China, Mexico, Greece, Turkey, Poland and Egypt. But, compared to markets like Brazil, Thailand, Philippines, Taiwan, Russia and Indonesia which have gained anywhere between 10 per cent to 56 per cent the rise in Indian Index is smaller. There are expectations that the world markets will remain firm until the US presidential election and US isn't expected to raise rates in the near future, at least not in 2016. This indicates that easy liquidity is still expected to float in the global market which would augur well for emerging markets including India.
2) Low yielding asset other than equity including debt, commodities, gold and real estate will keep interest towards equities.

Advertisement
3) Concerns over Chinese economy making a hard landing fading away.
4) Markets do not expect the Brexit to have a huge repercussion on the Euro-zone and countries in the EU looks to remain united.
5) Apart from global factors, strong domestic money flow also keep the party going. Domestic mutual funds investment through systematic investment plan (SIP) is seeing Rs 3,000-3,500 crore coming into equity market and another Rs 500-1,000 crore is coming from employee provident fund (EPFO). Both augur well for the Indian equity market. Historically easy liquidity in the system has overpowered fundamentals and therefore market may have legs for scaling higher, and with market being in uncharted territory staying put would still be the best option. While getting carried away becomes easy when one sees stocks especially in the mid and small cap space scaling new highs, it would be advisable to stick to frontline stocks which are generating positive cash flows rather than getting trapped in penny stocks.

Advertisement

Five reasons for the ongoing rise in Indian equity market

The rise in the Indian market is not a domestic phenomenon but a global phenomenon. The rise in the Indian equity market is comparatively much smaller than its peers in the emerging market.

RECOMMENDED

Five reasons for the ongoing rise in Indian equity market

The rise in the Indian market is not a domestic phenomenon but a global phenomenon. The rise in the Indian equity market is comparatively much smaller than its peers in the emerging market.

RECOMMENDED

{{title}}