Even as the markets fell sharply after the inflation concerns outlined by the Reserve Bank of India alongside the repo rate hike in its monetary policy announcement Wednesday, the BSE Sensex staged a smart recovery on Friday and rose 1.05 per cent following a strong corporate earnings performance in the quarter ended June 2018. The rally was boosted by the India Meteorological Department’s forecast of a recovery in the Monsoon for August and September. While the benchmark indices are trading near their all-time highs at a time when the mid-cap and the small-cap indices have witnessed correction, experts say that since the recent rally is largely stock-specific, investors need to look at individual companies, their business and financials before making any investment.
A look at the year-to-date performance of major indices shows that while the Sensex has risen close to 10 per cent and the Nifty is up nearly 7 per cent, the broader markets have remained disconnected. The BSE mid-cap and small-cap indices have plummeted nearly 9 per cent and about 13 per cent respectively in the same period. The S&P BSE 500 has gained just 2 per cent. The BSE Largecap Index has grown 6.8 per cent so far this year.
The market however, looks strong as of now. While the equity market was mostly supported by domestic institutional investors in the first six months, even the foreign portfolio investors (FPIs) have turned positive in recent months. According to the data sourced from CDSL, while FPIs pulled out a net of Rs 20,443 crore between April and June from Indian equities, July saw a net inflow of Rs 2,264 crore and the net investment in August so has been Rs 75 crore.
Pankaj Pandey, head of research at ICICI Securities, said that since the present rally is on the back of strong domestic fundamentals such as robust GDP growth, and GST revenue collections and better corporate earnings, therefore, it’s likely to stay that way unless something big happens. He however, added that concerns remain on the external front such as rising crude oil prices, tight US monetary policy and US-China trade tensions and they may lead to some correction in the market but “that is not going to derail the overall rally.”
K R Choksey, chairman of brokerage firm KRChoksey Securities, said that the stock movement is uneven across the market as only a few blue-chip stocks have outperformed in the current market rally.
Stating that for new investors, there is no good time or bad time to enter the market he said, “One needs to spot opportunities which the markets keep throwing at regular intervals. To enter the current market, investors need to go by individual companies’ financials and the management side to invest rather than the indices.”
There are others who agree with this point of view.
Pandey said that while mutual funds are a good route for new retail investors he cautioned that to get into the equities directly, one has to have a decent knowledge about specific stocks. “If the risk appetite is low then the investor should look at known names in the market, however, if the risk appetite is high then they can consider mid and small-caps companies too…. In the past the wealth creation in mid-cap and small-cap has been more than in large-cap but they also carry high risk and so individuals who do not have great understanding of capital markets should go though the MF route,” said Pandey.
Pointing that it is not only the mid- or small-caps that are at lows in the current cycle, Pandey said that even large-cap stocks are trading close to their 52-week lows.
Raamdeo Agrawal, chairman of Motilal Oswal AMC, however, wants the new investors to clearly take the MF route with a diversified fund portfolio. “The time horizon must be at least 5 years,” he said.