The fears of investors burning their fingers are misplaced. But they must avoid bad businesses and bad companies, says Shailendra Kumar of Narnolia Securities
PRAVASISAMWAD.COM
Stock prices in India are booming these days, crossing one milestone after another effortlessly at regular intervals. Sensex, the bellweather indices, India, raced past 61,000 mark on Thursday, gaining over 1,000 points in flat two days. A well-known, well-researched company like Tata Motor’s stock zoomed breathtakingly from Rs 300 level to Rs 500 level in a matter of days, as if there will be no tomorrow!
Retail Indian investors are pumping in money in bourses like never before, giving rise to the question if the stock markets are in the grip of intense euphoria, and the bubble is waiting to burst, burning the investors’ fingers?
Shailendra Kumar, co-founder and chief investment officer (CIO) of Narnolia Securities – a brokerage that has gained recognition nationally after a humble start years ago– feels that the fears of investors burning their fingers are misplaced. “Investors can lose heavily if they trade in derivatives – futures and options section – and rely on leveraging – taking loans to invest. But this is not the case now.”
However, Kumar has a word of caution. “Markets have both good and bad companies. Investors need to shun bad business. If Nifty (another indices) corrects by 10-15 per cent, bad businesses could fall by 50 per cent. So, it’s surely a matter of caution.”
Kumar doesn’t rule out the possibility of markets correcting 10-15 per cent but is sanguine that the Indian bourses should, thereafter, resume their upward journey. “If correction comes, that would be an opportunity for aggressive buying.” However, don’t invest in bad quality business, he iterates.
“In the worst-case scenario, stock prices could correct 10-15 per cent, but this would be temporary. There could be notional loss for a while – 3 to 6 months – but investors would profit in the long run as markets resume their upward march. This boom is no flash-in-the-pan phenomenon. Euphoria is beginning to build up, but there is no bubble. Investors need not be fearful,” the market veteran says
— Shailendra Kumar, Co-founder and chief investment officer (CIO) of Narnolia Securities
Indian economy is undergoing a structural change, he says, which should keep the markets buoyant in the long run. “Economy is at the cusp of recovery, with clear signs of improvement. Demand for power has gone up and tax collection is high,” he buttresses his point.
The basic underlying factors behind the Indian economy are likely to remain strong in the coming years. “Economy is witnessing greater formalisation. Informal economy is ceding ground to formal economy, and larger companies listed on stock exchanges are getting larger, compared to MSMEs. Their margins are improving, resulting in large improvement in their earning per share (EPS). And, stock prices are a play on earnings,” says Kumar.
“Moreover,” he adds, “Covid has given a boost to digitisation and we (India) have emerged No. 1 in it. Digital dollar has created great interest in India. Lastly, middle class money is now coming to stock markets. Retail participation is rising with every passing day.
“In the worst-case scenario, stock prices could correct 10-15 per cent, but this would be temporary. There could be notional loss for a while – 3 to 6 months – but investors would profit in the long run as markets resume their upward march. This boom is no flash-in-the-pan phenomenon. Euphoria is beginning to build up, but there is no bubble. Investors need not be fearful,” the market veteran says.
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