About the Author:
Viral Trivedi is a Chartered Accountant (CA) with over 18 years of work experience in Financial Services and Capital Markets. His expertise includes equity research and trading, wealth management, financial & investment planning, corporate finance, investment advisory and fundraising for corporates.
Currently, he is the Founder and Partner at the consulting & advisory firm LIFE Investment Advisory (www.lifegroup.net.in). At LIFE Investment Advisory, he manages the equity investment portfolio of his clients. In addition to equities, the firm also advises clients on investments in various other asset classes such as mutual funds, real estate. LIFE Group also plays an active role in raising funds by way of debt and equity for mature business as well as for Start-ups.
Viral is also actively involved in academics since the past five years. He regularly delivers sessions on subjects like; Capital Markets and Securities, Fundamental Equity Research, Strategic Corporate Finance, Asset Valuations, Accounts and Financial Management, Entrepreneurship and Fundraising for Start-ups.
March 2020 to November 2020 witnessed a roller-coaster ride for equity markets. As the apprehension and nervousness weigh in the sentiments in general during this period amid economic and pandemic gloom, the equities outperformed across the globe and Indian indices also witnessed a sharp rally. The SENSEX index touched all-time high above 44,000 as markets opened post-Diwali holidays.
So what are catalysts for this rally?
To fight the recessionary pressure in the economy, the central banks across the world have flushed the liquidity into the financial system. This has led to strong flows into the emerging markets and towards the riskier asset class like equities. The FII flows into Indian market crossed over Rs. 38,000 Crs in the month of November 2020; a highest in last 13 years! And well, there are still a few more trading sessions left in the month.
The US election results, NDA victory in Bihar and Positive news flow on COVID-19 Vaccine has lifted the sentiments over past one month.
However, with equity indices touching an all-time high, the scepticism is high amongst investors. However, with strong momentum and liquidity flows, the party is likely to continue on Dalal Street.
The initial phase of the rally was much narrow and primarily focused on select large-cap companies. However, going forward this rally is likely to become broad base with Companies from mid & small-cap universe across various other sectors can participate in coming months.
Well, a word of caution; Do not expect cats and dogs to start running with horses this time around. The pandemic has led to severe pain for many sectors and smaller companies.
Although the Govt. has announced a bouquet of stimulus for the MSMEs & SMEs across various sectors, the ground realities are still challenging for many such Companies. The stress in liquidity for MSMEs & SMEs is visible. The credit off-take from banks is low as the banking system is grappling with bad assets.
The equities always move ahead on expectation and discounts the news flows much in advance. However, there are few catalysts with a red flag which may provide some speed breakers for indices juggernaut!
The recent green shoots in the economy need sustain overcoming few quarters which will indicate that the worse in terms of the economic slowdown is over post-pandemic/ lockdown.
The NIFTY index is already trading over 20x forward PE multiple. This valuation is not cheap. So to sustain these valuations, the corporate earnings have to pick up to justify the premium valuation of Indian indices. One has to remember that the stock price and valuations of many Companies are back to pre-COVID levels, but the Sales/ Revenue/ Profits of most of the Companies are yet to reach to the pre-COVID days.
The liquidity and the benign sentiments have lifted the equities, now the fundamentals need to run the next mile and meet the expectations of the investors!