The recent years have been quite challenging for India. The economy has witnessed worst slowdown since 1980 under the Congress rule. However, the Indian markets have surged to a lifetime high levels in the last 2-3 months. The BSE-Sensex and the NSE-Nifty have touched lifetime highs of 25k and 7k respectively. A favorable outcome of the elections has been the key reason for the market run up in the past few months.
On one hand the investors are optimistic about the new government as people believe that business friendly alliance will form a stable government which will speed up reforms and the Indian economy will see better fortunes. But on the other hand investors also seem to be a bit concerned about the huge rally that took place over the past few months. So from this level, where will the market go? Are stock markets expensive at current levels?
Before we give our view, let us recap one of our previous issues of 5-minute wrap up where we have explained about the current market rally and the valuations. We had done this exercise just few days before the before the elections outcome. Please see the link here.
From the above study, we had concluded that the forward Sensex PE of about 17 times indicates that in spite the markets have surged, it is still good time to invest in stocks from a long term perspective. One can be assured of good returns.
Having said that, let us also remind about the fact that the Indian economy is still weak. Inflation is high, interest rates are firm and growth in manufacturing, infrastructure and industrial sectors has remained sluggish because key projects have been stalled. These issues need to be urgently addressed. While tackling these issues will not be an overnight task.
And hence investors should always base their decision keeping every stock's fundamentals, valuations and risk factors in mind. Investors should avoid investing on events such as elections etc. Thus even when the stock market plummets, the investors holding safe stocks will be better off.
Over and above, in order to mitigate the risks, one should always diversify their investments. That is one should not put all their money in single stock or asset. We thus keep reminding about our asset allocation time and again to our investors.