The stock markets are riding a crest despite the economy still reeling under the effect of Covid-19 second wave.
So, what is driving investor sentiments at Dalal Street?
Money9 spoke to independent market analyst Ambareesh Baliga to understand the reasons and the road ahead.
“It seems like irrational exuberance in markets as with second wave, we are already seeing downgrades for the economy by several top financial institutions and broking houses. Research firms which were betting on a 12-13% growth in the economy for FY22 have revised forecasts to 8-9%. I won’t be surprised if the predictions are further brought down to 7% or below,” independent market analyst Ambareesh Baliga told Money9.
He also said one needs to question if listed companies can continue to grow at the earlier expected rate in the current fiscal year as the recovery we saw last year after the lockdown may not be repeated.
“We can expect downgrades on earnings growth after Q1FY22 numbers are announced. The Q1 numbers will be bad reflecting the impact of the second wave even though there will be growth year on year.”
On continuous FII flows, he said the liquidity is the friend of the trend and flows can turn overnight and in that case, there could be a sharp fall.
On the strategy that investors should follow, he said they should book profits.
“The writing is on the wall, one can look at the market cap to GDP, the high frequency data, the dip in GST collections, white good or auto sales as well which are slowing down. High liquidity is forcing people to look the other way and even the naysayers are buying. The rally in markets could continue for a while longer but there is a choice available and I am choosing to stay out”, he added.
Even on the unlock theme, he believes it may not see the revival like last time as the emotional damage done by the second wave is much deeper so consumers may take a cautious stance and may want to save as much as there is also a fear of the third wave as well.
He believes value can be unlocked in stocks like Rites, Railtel, IRFC.
Commenting on IPOs, he said: “The composition of markets is changing, the soon to be listed unicorns are interesting to look at. Companies like Zomato, Paytm, Nykaa or Delhivery have proven leadership in their own segments and one wouldn’t be surprised if any of these names find place in the benchmark index over a few years as well. There is merit in looking to invest in these new age companies.”
