Next steps for the BSE Sensex at 75,000?
Looking through the newspapers, one notices that the BSE Sensex has reached 75,000 points in a number of stories and editorials. To be honest, I was a little surprised by it.
This brought back memories of a previous client meeting I had in the Middle East when the Sensex was trading at about 35K. During the debate, while the Sensex was hitting all-time highs, I predicted that it would eventually exceed 50K. The client’s wide grin conveyed his utter amazement at what he saw to be a careless remark. But when the Sensex really hit 50K, he contacted me, recalling our conversation. An index is only a gauge of the markets that tells you if and how much equities are rising or falling. various market sectors and/or coverage (30, 50, 100, 200, etc. companies) are tracked by various indexes, and their performance varies depending on the universe they represent.
Sensex hitting a milestone is thus positive. Understanding that the underlying equities that make up the Sensex are rising is crucial, but even more so is figuring out if this rise is the result of money flow, speculation, or positive indications in the underlying performance of the companies. To assess the level of speculative activity, if any, let’s examine money flow and fundamentals independently.
According to what we’ve read, mutual funds have been at the forefront of the once-in-a-lifetime shift in Indian retail investors’ risk appetite. Retail investors are forced to start nibbling at stocks as other asset classes have underperformed over the previous several years. A little adjustment made on a per-individual basis has added up to a monthly investment of R 20,000 crore in stocks via Systematic Investment Plans.
The markets have always been driven by foreign investors, but they haven’t determined what to do next. We think this is mostly because of their strategy, which is based on a top-down distribution of assets to different markets and regions rather than a bottom-up concentration on certain areas. It seems likely that this will alter shortly, most likely during the impending Union Elections. As a result, there has been a lot of money flowing into the markets, and this trend is likely to continue. The second component of stock prices, fundamentals, are still firmly in place. A number of favorable elements have combined to create what Charlie Munger used to refer to as “The Lollapalooza Effect.” A handful are covered below.
Fundamentally, there is less ambiguity in the nation about whether or not there will be peace and harmony. Individuals now have more time to concentrate on their life and increase their productivity. One of the key elements propelling the nation’s unparalleled consumer demand is this feeling of confidence. Indians are spending more money than ever on luxuries and are more optimistic about the future as a result of their growing riches. In addition, targeted government expenditure in strategic sectors and startup funding are causing money to seep into different societal strata, especially marginal wage workers. The lower end is spending on their necessities as their salaries improve, while the upper end is spending by up-trending to luxury items. The government’s resolve to integrate India into international supply chains is another significant plus.
The future course of economic development might also be affected by other variables, such as the unpredictability of the monsoon. A strong monsoon might lead to a resurgence of rural demand, which would enhance the already favorable environment. Geopolitical tensions are building, and the recovery in some major economies has been feeble, which is not good news for the globe and for India in particular. India continues to be a ray of light in an otherwise dismal world, but we hope that the global economy takes off and brings everyone together.
As a result, it is neither surprising nor concerning that the indexes are hitting new highs. The indexes are just a reflection of the state of the underlying economy and will continue to show optimism if businesses are expanding and doing well. It would be wise for investors to create a well-thought-out investment strategy that includes a long-term, strategic allocation across different asset types. Rather of letting short-term moves and milestones derail them, they should possess the discipline to stick to the strategy. Warren Buffet once said, “Players who focus on the playing field-not those whose eyes are glued to the scoreboard-win games.” This reminds us of him. To the Sensex reaching “One Lakh” and beyond, cheers.
