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Market euphoria is up for a reality check, says Dhiraj Relli of HDFC Securities

Market euphoria is up for a reality check, says Dhiraj Relli of HDFC Securities

The HDFC Securities honcho believes that investors should only look at well-run companies and avoid those with stretched valuations.

Dhiraj Relli, MD & CEO, HDFC Securities Dhiraj Relli, MD & CEO, HDFC Securities

The Indian equity markets may well be among the best-performing globally this year but the recent past has seen stocks correct and consolidate even as market participants have been cautioning investors against the increasing headwinds.

On Monday, the benchmark S&P BSE Sensex lost nearly 2 per cent or 1,170.12 points to close at 58,465.89. It was the highest single-day fall for the index in absolute terms since April 12, 2021 when the barometer had lost 1,707.94 points.

The broader Nifty of the National Stock Exchange (NSE) shed 348.25 points or 1.96 per cent to end the day at 17,416.55.

Interestingly, most market participants are of the view that the valuation of the Indian stock market is quite stretched and the upside is limited. They further advise investors to stick to fundamentally strong companies and invest with a longer investment horizon, especially in the start-up ventures.

"We feel that markets are more than reasonably valued at this stage and in terms of indices level, the upside is very limited," said Dhiraj Relli, MD & CEO, HDFC Securities.

"Markets are up for correction. The current euphoria or exuberance is up for a reality check. We have been cautioning retail investors to be very selective in markets while focusing only on well-run companies," he added.

The benchmark S&P BSE Sensex is up by a little over 22 per cent in the current calendar year while the broader Nifty has gained 24.24 per cent. This is much better than most other leading equity benchmarks globally including FTSE (up 10 per cent), Nikkei (up 9.23 per cent), Hang Seng (down 9 per cent) and DJIA (up 18 per cent).

Incidentally, the returns of the Indian benchmarks are bettered only by the S&P 500 of the US, which is up nearly 27 per cent in 2021.

Last year, foreign portfolio investors poured in a little over $23 billion in Indian equities. This year, till date, the net inflows by FPIs is only around $9.3 billion with October witnessing a net outflow of $1.8 billion.

"Investors should go for well-run companies and not those with stretched valuations for the simple reason that such firms will be able to weather the correction in a better way. Those with governance issues or concerns related to the business model or earnings could see a steeper correction," said Relli.

Start-up issues

Paytm has been in the limelight ever since it made its stock market debut last week. In its two days of listing, the stock of the fintech major has lost nearly 37 per cent or Rs 790 when compared to the issue price of ?2,150.

This is in sharp contrast to the recent listings from the start-up world that saw ventures like Nykaa, Zomato and Policybazaar make a strong debut though there has been some amount of correction post listing.

"Some of the companies [start-ups] are not making money but still enjoying very high valuations. Investors need to look at valuations of some of these companies with a pinch of salt and be very careful. We do not see a very significant amount of upside in many of these companies, which might trade below their issue prices in the coming months," said Relli.

However, companies with a good business model and which have created a niche for themselves will provide a hockey stick kind of growth provided investors hold on to the shares for three to five years at least, he added.

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