Markets At All-Time Highs – But No Reason To Worry !
We said it in the issue no 10, volume 33, dated April 16-29 2018, even when everyone else was bearish on the markets that Sensex will reach 38000 by year end. Now, here we are at a kissing distance of the magic figure with almost five months to go for the markets to conclude the year. The journey has been comparatively more volatile for Sensex this year when compared with Sensex movement in 2017. The story of the broader markets has been a total contrast. Almost 80 per cent of the stocks that trade on the bourses have underperformed the key benchmark index, thus making it difficult for majority of the investors to generate positive returns.
The current bull run is not broad-based and only the select large-caps are showing outperformance. Also, note that the delivery volume is at five-month low in the month of July, suggesting lower participation from investors.
It is only logical to remain cautious about the markets with so many visible headwinds ahead for the markets. However, it is not advisable to exit equities and remain in cash at this juncture. We believe markets can scale new heights owing to consistent improvement in earnings QoQ over the next few years, improvement in GDP growth rate by 0.4 to 0.5 per cent every year in the next 3 to 5 years and stable macroeconomic environment.
The way to invest in this market is to avoid short term focus and select quality stocks that are either reporting quality earnings or are expected to do so in future. It is tempting to say that mid-caps and small-caps are bottoming out, however one should always be more cautious when it comes to investing in these stocks.
The current issue is a special CFO edition where we have provided an opportunity for investors to get to know directly from the strategists themselves about the company’s future plans and goals. I am sure the long-term investors would benefit from the specific comments made by the finance captains of Corporate India on various issues facing Indian economy and various sectors. It is interesting to see that majority of the CFOs do not see the trade war as a major factor that may dampen the investment sentiment at the corporate level. To find many more such interesting aspects from the insiders, please go though our special edition on CFOs in India. Do give us your feedback on the special edition and whether you agree with the views of the CFOs on a variety of topics.
We are expecting some good set of results from NBFCs this season. We have hinted where the investors should focus in the NBFC space in our cover story. For sure, NBFCs should occupy good amount of space in your long-term equity portfolio.
Going forward, focus on bottom-up investing opportunities. Before you make investment, study if the balance sheet is intact and that it is not stretched, cash flows are consistently positive and analyse if the business in which you are investing will survive for the next 10 years. Markets are expected to remain robust owing to liquidity and improvement in quality of earnings. Markets at all-time highs should not worry you. If markets at all-time highs were bad for equity prices, they would have never moved up from previous all-time highs. So don’t be scared of investing at all-time highs!!
Invest smartly, invest regularly.