Signs of positivity shining through the gloominess of the pandemic #MarketRealities
Sensex has risen over 30% in last 14 weeks. Many Blue-Chip companies have registered much larger gains. Even in the grimmest of the situation, our stock markets have demonstrated resilience and a good comeback. The BSE SENSEX now stands just 11% lower than its Pre-Covid highs. The below table plugs the fall & subsequent bounce:
Despite having been projected to become the 2nd highest Covid infected country, and already witnessing big slippages in its budgetary economic deficits; sizable shrinkage's seen in economic activities, and its consequent alarming impact on businesses, India's stock market, for now, is holding on strong. Even exits in tranches by FII's is not culling down sentiments of Indian investors. This Covid period has seen stark increases in two things - Gold prices and investors. The fact, although unbelievable, remains that more fresh trading accounts have opened now then the previous corresponding period.
Stock markets work on sentiments. And sentiments arise out of perception which stems from future outlook. Future outlook or foresight is based on estimation of how good or bad the near-term and mid-term scenario could be. In our case, future outlook depends on successful outcome of vaccine and its timing. Positive perception also depends upon the belief that our Government and business leaders are capable of overcoming challenges and fostering healthy economic growth. If you have missed our blog 'Understanding of Perception: Key ingredient for success in stock market', we recommend that you should read now.
Is stock market becoming riskier or plum with opportunities of big returns?
On an average stocks are valued at twenty times its Price Earnings which is by no ways cheap in today's times. All of us know that current performances of most companies would be pretty torrid. According to us a bull run depends on how soon Covid Vaccine becomes publicly available. The world cannot easily get back to Pre-Covid days without a vaccine. The chances of vaccine to soon-be-available, though unprecedented, seems a possibility with enormous efforts undertaken by quite few countries like UK, USA, China, India, Japan & Korea.
Also our country has been luckier that the fatality rate for Covid in India is very low and a majority of them are either asymptomatic or with mild symptoms.
In our blog 'What shares to buy?' published in early May this year, we had identified 31 scrips for long term investments. Only 5 out of them hit our target buy rates and those were HDFC, HDFC Bank, Kotak Mahindra bank, Supreme Industries & Bajaj Finance. Bajaj Finance has risen 67% & the rest in the range of 22 - 25%. During this period the SENSEX itself has increased by about 20%. At that time we were expecting markets to slip further while the reverse occurred.
While it seems that the markets may not again see its March lows we expect some corrections in the range of 10 - 15% which long-term investors could see as an entry opportunity.
Investors holding on to Blue-chip stocks for decades and having earned handsome dividends and seen large appreciations can actually make a little more by being pro-active. In our blog '2X Growth potential for long-term investors' we had shared a story of how Mr. Deepak, without infusing fresh capital, could increase his holding of Maruti from 10k shares to 29k shares.
Amidst uncertainties it is not easy to predict the market trend. However, we expect volatility to continue and continue to see opportunities as mentioned in our last blog 'Trading opportunities in stock market'
We recommend investors to take advantage of plentifully available 3 to 6% trading opportunities for investment horizon of 2 - 20 days. Our PMS division, in recent times, grabbed good opportunities in Ajanta Pharma, CIPLA, Indusind bank, etc.
Wishing everyone good health and prosperity.