WHERE TO GO IN THIS BULL RUN
There are picks even in this overheated market
On July 25, Nifty, a benchmark index of top 50 stocks, crossed the psychological 10,000 mark. Since then, many investors have been sitting on the fence wondering whether it’s a good time to put money in the stock market. The question on their minds is whether the markets are overvalued. Market experts have mixed views on the current valuation of the stock market.
While some think it’s not overvalued, others feel that the market has rallied much with little earnings support over the past three years, and that a breather is necessary. To give an idea, the price to earnings (P/E) ratio was around 28 times at the beginning of 2008. It came down to around 17 times in mid-2013 and is around 24 times at present.
There are several reasons for the recent rally in the stock market, from increase in liquidity to formalisation of the economy with the Goods and Services Tax (GST) coming into effect. The shift of savings from physical to financial assets is another reason for the jump in the markets. With real estate long in the slump and gold and fixed deposits giving very low returns, more and more investors have been opting for equities to get inflationbeating returns.
Valuation
The market has factored in a strong recovery in earnings— a much-delayed and awaited development. Given the low base of corporate earnings and revival of consumptionled demand, experts expect a strong earnings recovery in the coming years.
Moreover, domestic mutual funds are seeing record inflows. Around Rs 4,000 crore, for instance, is invested in the stock markets every month through systematic investment plans (SIPs). Not only are domestic inflows increasing, the foreign institutional investors (FIIs) also hold a big chunk of the equity markets, signalling that the markets are expected to remain on a growth trajectory.
Where to invest?
Experts find these sectors attractive for investment.
Infrastructure
With the government increasing spending on infrastructure, such as road, railway and urban development, infrastructure and capital goods companies are likely to benefit. The affordable housing segment is expected to play an important role in the revival of cement and construction material-related industries.
Fast-moving consumer goods
Consumption is likely to get a big boost from rural India, particularly after a good monsoon, better credit facilities and increase in agricultural productivity. The higher cash flows for government employees from the 7th Pay Commission payouts will also push consumer demand.
Non-banking financial companies
Banks stand to benefit the most from the government’s focus on affordable housing. This year, the sector got 39 per cent higher allocation in the Union budget. The banking sector is also expected to get a boost from NPA-recognition exercises by the Reserve Bank of India.
Automobiles
The increase in rural incomes is expected to drive sales of two-wheelers and tractors.