A vast majority of stock market investors are on cloud nine, having reaped a rich harvest on their investments in the last 18 months. The runaway rise in stock prices was preceded by a steep fall in Sensex from around 41,000 level to about 27,000 between January-March, 2020 in the wake of Covid-19 pandemic across the globe
After crossing a new milestone of 60,000 mark on Friday last week, the Bombay Stock Exchange’s index – Sensex – remained almost flat on Monday and witnessed significant volatility on Tuesday, ending the trading session 410.28 points down at 59,667.60. It gyrated in a 1242.91 point range during the day, hitting an intraday high of 60,288.44 and a low of 59,045.53.
A vast majority of stock market investors are on cloud nine, having reaped a rich harvest on their investments in the last 18 months. The runaway rise in stock prices was preceded by a steep fall in Sensex from around 41,000 level to about 27,000 between January-March, 2020 in the wake of Covid-19 pandemic across the globe. Lockdown in various countries, including India, spelt uncertainties of unprecedented proportions for the global economy and sent the stock indices reeling.
However, the recovery in stock prices and indices was sharp overall. Defying the doomsayers, Sensex, in India, went up about 33,000 points between 3 April, 2020 and September 24, 2021. Put a little differently, Sensex zoomed 130 per cent in the past 18 months, to 60,000.
This period saw an unprecedented number of new investors flocking to the stock market – the number of demat accounts, in which investors’ shares are kept in electronic form, witnessed an implosion, crossing the figure of 8 crore from 6 crore. Low interest rate on bank deposits was an important causative factor and infusion of liquidity by various central banks aided fund flow, leading to runaway rise in stock prices. Sensex and other indices in India kept going up, up and away despite notes of concern and caution being struck by the likes of RBI governor Shaktikant Das and Sebi (Securities and Exchange Board of India) chief Ajay Tyagi.
Where do the markets go from here, is the question on top of investors’ minds. Forecasting about markets is dicey in best of times, and more so after the runaway rise mentioned above. A section of experts is of the opinion that a pricewise or timewise correction may be lurking round the corner, while another section sees positive momentum continuing on the back of improving economic activity.
Need for a long-term view to investments and tempering one’s return expectations, too, will be in order. The galloping equity prices of the past 18 months could very well be ‘once in a lifetime’ kind of development!
As of now, there is an air of optimism. But axiom of the market is: “The majority opinion is always wrong.” Eminent market guru Sir John Templeton had famously said, “Bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria.”
Naveen Kulkarni, chief investment officer, Axis Securities, has gone on record, saying, “We could see many more positive surprises from the market in the next one-two years, as we are entering into a positive upcycle of earnings trajectory. A fully functional economy over the upcoming festival season and the sustenance of earnings momentum in the second quarter of FY22 are the near-term triggers for the market.”
Be that it may, stock markets are characterised by periods of euphoria, phases of absolute quiet and negative returns also. Protection of capital is the first principle of wealth creation. Therefore, weeding out companies with weaker fundamentals from portfolio, betting on companies with stronger fundamentals and booking some profits on earlier investments – a bird in hand is better than two in the bush – appear to be the most prudent course of action for investors to follow.
On the other hand, for relatively new investors or for those who can’t do their own analysis or those without a trusted and experienced investment adviser, mutual fund route to investments appears more advisable. One has to bear in mind that fall in stock prices is much, much faster than the rise. Need for a long-term view to investments and tempering one’s return expectations, too, will be in order. The galloping equity prices of the past 18 months could very well be ‘once in a lifetime’ kind of development!
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