Vijay Kumar Gaba

The first of the current financial year progressed on the predicted lines. There were no remarkable surprises either in the global macroeconomic developments or market performance. The focus of market participants and policymakers remained mostly on the macroeconomic parameters. Economic growth and trade moderated worldwide with a few exceptions like India. Inflation remained elevated but under control. Monetary policy continued to tighten resulting in higher bond yields, tighter liquidity, and rising cost of capital. Geopolitical conditions remained mostly unchanged.

Commodity prices moved in tandem with the macroeconomic, geopolitical, and environmental conditions. Clouded growth outlook led the industrial metals down; higher bond yields and stronger USD weighed the precious metals lower, depleted strategic reserves and larger output cut by OPEC+ led the energy prices higher, and better crop and improvement in shipments from war zones led the agri produce prices lower.

Chinese equities (especially in Hong Kong) performed the worst amongst peers; whereas Indian equities were amongst the best performing assets.

India did well on most parameters; domestic flows ex-SIP negative

The Indian economy grew ~8% in 1QFY24 and is expected to log an average growth of 7.25% in 1HFY24. The benchmark bond yields (10yr G-Sec) withstood the pressures of rising global yields and potential fiscal pressures due to rising crude prices amidst a heavy election schedule, and eased 5bps. Despite the cloudy CAD outlook, INR remained one of the strongest emerging market currencies. It weakened ~1% against USD, but recorded decent gains against EUR, JPY and GBP.

The consumer price inflation remained elevated, within the RBI tolerance band, primarily due to vegetable and fruit prices; whereas wholesale prices entered the deflation zone. RBI has maintained a status quo on the benchmark rates since the last 25bps hike in February 2023; and continued with the withdrawal of accommodation provided during the Covid period. At the end of 1HFY24, the banking system liquidity was in negative territory vs the peak surplus of Rs12trn during 2022.

Corporate earnings trajectory continued to improve, with NIFTY50 RoE breaching the 15% mark for the first time after 2015. The breadth of earning also improved with a larger number of companies and sectors participating.

The benchmark Nifty50 gained ~13% during 1HFY24. The broader markets however did extremely well with small cap (~42%), midcap (+35%), and Nifty 500 (+19%) registering strong gains. The gains were led by rate-sensitive sectors like Realty, Auto (especially ancillaries), and PSU Banks. Infrastructure, Capex and healthcare themes also outperformed the benchmark indices. Non-PSU financials and services were notable underperformers.

Within the capex and infra theme, defense production, power utilities & equipment, railways ancillaries, and engineering design services were the most notable gainers. Chemicals and consumer durables were some of the notable underperformers.

Foreign investors were net buyers in five out of six months during 1HFY24. Net FPI flows in the secondary market exceeded Rs1.24trn. Domestic institutions on the other hand were not as enthusiastic. The net domestic flows were a meager Rs141bn during 1HFY24. However, adjusted for the strong SIP flows (appx Rs140bn/month), the domestic flows have been strongly negative.

The benchmark Sensex has recorded its new all-time level today, surpassing its previous high level of 63583 recorded in early December 2022. Nifty50 is also few points from its previous highs. In the past six months, since December 2022, both the indices have taken a huge swing of over 10%.

Optically the markets may appear flat for the past six months, as the benchmark indices are almost unchanged; but a deeper dive would indicate that many material shifts have occurred in the market during this period of six months. For example-

·         Nifty50 is almost unchanged for the past six months, Nifty Midcap100 has gained over 9% and Nifty Smallcap100 has gained over 7% in this period.

·         The sectors that led the markets to new highs in the post Covid period, i.e., IT Services, Pharma, Energy and Metals have actually yielded negative returns in the past six months; while the FMCG sector has been the best performer in this period.

·         Nifty PSU Banks that are the best performing sector for the past one year, have actually yielded a negative return for the past six months.

·         Despite the turning of rate cycle upwards, popular rate sensitive sectors like Auto and Realty have been amongst the top three performing sectors.

Despite sharp outperformance of broader markets, average market breadth for the past six months has been mostly negative. The months of January-March 2023 in fact witnessed the worst market breadth in over two years.

Another pertinent point to note in this context is that Indian markets have sharply underperformed the most emerging market peers and developed markets in the past six months. Note that in 2022 India was one of the top performing global markets. This is in spite of net foreign flows being positive in the past six months to the tune of Rs500bn (vs Rs1256bn outflows for 2022).

Taking a comprehensive look at the market performance during the past six months, I would draw the following conclusions:

1.    From the sharp outperformance of broader markets it is evident that the sentiment of greed is overwhelming the investors’ fears; and signs of irrational exuberance are now conspicuous.

2.    Most of the good news (rate and inflation peaking; earnings upgrades; financial stability; etc.) is already well known & exploited; while the fragility in global economy and markets has increased and hence the present risk-reward ratio for traders may be adverse.

3.    From a historical relative valuation perspective – Nifty is currently trading at ~4% premium to its 10yr average one year forward PE ratio. The same premium for Nifty Midcap100 is 14%; while Nifty Smallcap100 is trading at ~2% discount to its 10yr average one year forward PE ratio. The discount of smallcap PE ratio to Nifty PE ratio is presently close to 22%, larger than the 10yr average of 16.5%. The sharp outperformance of smallcap may be a consequence of value hunting and irrational exuberance, rather than greed; and the traders may soon return to Nifty as the valuation gap is filled.

In my opinion, therefore, it would make sense to take some money off the table, especially from broader markets and high beta stocks. 

 In the first two months of FY24, Indian markets have done well. The market breadth has been strong and; volatility very low. The latest market rally could be described in at least three different ways, viz,

1.    The benchmark Nifty50 has gained ~6.5% from the end of FY23; and the broader market indices like Nifty Midcap100 (~12%) and Nifty Smallcap 100 (~13%) have done significantly well during this period, indicating much improved sentiments. This view would imply that presently the sentiment of greed is dominating the sentiment of fear.

2.    At the current level, Nifty50, Nifty Midcap100 are close to their all time high levels recorded in the 4Q2021 and again in 4Q2022. Whereas Nifty Smallcap100 is still about 20% lower from it’s all time high level seen in early 2022. So effectively the markets have been oscillating in a wider range after the sharp rally post March 2020 Covid panic lows. This view would imply that since the market is now close to the upper bound of its trading range, traders would be looking to pare their long positions; especially because most of the good news (rate and inflation peaking; earnings upgrades; financial stability; etc.) is already well known & exploited; while the fragility in global economy and markets has increased and hence the present risk-reward ratio for traders may be adverse.

3.    From a historical relative valuation perspective – Nifty is currently trading at ~3% premium to its 10yr average one year forward PE ratio. The same premium for Nifty Midcap100 is 14%; while Nifty Smallcap100 is trading at ~2% discount to its 10yr average one year forward PE ratio. The discount of smallcap PE ratio to Nifty PE ratio is presently close to 22%, larger than the 10yr average of 16.5%. The sharp outperformance of smallcap may be a consequence of value hunting rather than greed; and the traders may soon return to Nifty as the valuation gap is filled.

Whatever view one takes, in my opinion, it would make sense to take some money off the table, especially from broader markets and high beta.

 It was spring of the year 2022. The news flow was worsening every day. The Russia-Ukraine conflict was dominating the global media headlines. NATO-Russia acrimony was at its worst since the cold war era. China committed to a zero Covid policy and implemented strict mobility restrictions, further impacting the global supply chains. Inflation was beginning to spike and most central bankers were ready to embark on an accelerated tightening cycle.

Back home, the enthusiasm created by a path breaking budget had not survived even for a whole week. Issues like macroeconomics (growth, inflation, current account, yields, INR), geopolitics (Russia-Ukraine), politics (state elections) and persistent selling by foreign portfolio investors (FPIs) was dominating the market narrative. The trends in corporate earnings also were not helpful to the cause of market participants.

By early March 2022, the benchmark indices had fallen substantially from their highest levels recorded till then, between October 2021 and January 2022. The Nifty50 was down ~11%; the second most popular benchmark Nifty Bank was down ~16%, the Nifty Midcap 100 was down ~14% and the Nifty Smallcap 100 was down ~17%. Though technically, the market was still in ‘correction’ mode, sentimentally it did feel like a ‘bear’ market.

Amidst all the gloomy headlines and bearish forecasts, I felt that we are most likely to witness a boring market rather than a bear market in India during 2022 with breadth narrowing. (see here). Since then benchmark Nifty is higher; but it has mostly moved in a range occasionally violating the range on both the sides.

Since the beginning of 2022, Nifty50 (+1%) is almost unchanged and midcap (-3%) have performed mostly in line. Nifty Bank (+10%) has been major outperformers; while Smallcap (-20%) have underperformed massively. The market breadth has accordingly been mostly negative.

The benchmark Nifty is down about 15% from its October 2021 closing high of 18477. A broader gauge of the market performance Nifty500 is also down by a similar proportion. However, anecdotally I find that damage to the investors’ sentiments is much worse than what this extent of correction in these indices might be suggesting. There could be multiple reasons for the investors’ despondency. For example—

·         Most of the popular trades of 2020-21 that have attracted a whole lot of new investors/traders to the equity markets have lost materially. The Covid trade (Pharma, healthcare); New listed IT enabled businesses like ecommerce platforms and Fintech; popular disinvestment candidates; PLI beneficiaries; self-reliance and import substitution (Specialty chemicals, electronics) have sharply underperformed the markets. A large number of these stocks have corrected 25-75%.

The non-institutional investors have a tendency to chase popular trades. The beta (correlation with the benchmark index) of their portfolios is therefore much higher than a well-diversified portfolio. Obviously, the losses to their portfolio may be much higher than the extent of fall in the benchmark indices. To make the matter worse, the visibility of recovery of their losses is much lower, as the rationalization of the valuations in the popular trades may be more permanent in nature. We might not see loss making new age businesses; commodity chemicals; generic pharma and API makers; and electrical appliance assembly units etc. trading at crazy multiples in the next few years at least.

·         Most equity and debt mutual funds have yielded negative or nil returns in the past 6 months. The real return on bank fixed deposits has also been negative for the past six months. The global and domestic markets are indicating that the probability of any reversal in this trend is very low for the next few months at least. The New investors, who have not experienced a genuine bear market (e.g., 1990s) may be feeling nervous about losing their hard earned wealth.

·         Nifty Smallcap 100 has lost close to 28% from its January 2022 high; almost twice the losses in benchmark Nifty50 or Nifty500. The actively managed portfolios that have more smallcap stocks (high growth at reasonable valuation) may therefore be suffering more damage than what the benchmark Nifty is indicating.

·         The macro environment (both domestic and global) has deteriorated in recent months, especially after the war broke out between Russia and Ukraine. It appears that the measures adopted to arrest the macroeconomic deterioration may be friendly to the equity valuations. The rate hikes, liquidity withdrawal, fiscal tightening etc. have diminished the visibility of growth capex. There are early signs of consumer demand destruction in discretionary spending due to inflation and higher rates. The investors may be fearing even deeper correction in sectors like cement, metals, consumer electronics etc.

It is important to understand that the markets are caught in a perfect storm – (i) Liquidity is shrinking; (ii) cost of capital is rising which requires target valuations to moderate; and (iii) growth environment is clouded which requires earnings forecast to be downgraded.

The best strategy therefore would be to (a) hold nerves and not panic; (b) review the portfolio for any corrective action that may be needed once the storm passes and the sea becomes calmer. It may not be a good idea to go out on the deck and try catching some fish.

I have been married for more than two decades now. In all these years I have deliberately maintained a safe distance between my personal and professional life. My wife Anandi, a post graduate in Hindustani Classical music and an amateur poetess has never shown any interest in the matters relating to finance. She finds it too “dry and mundane”. Last few days though have been a little different. To my surprise, Anandi herself started a discussion on stock market. At once, I could not fathom why she would be suddenly interested in what she always believed to be the mired world of finance and investments. But soon I realized the catalyst of this change- it was her cousin brother Anuj, who has apparently lost heavily in the recent collapse in the stock market.

 The markets have been in a punishing mood for the past couple of weeks. Especially after the “path breaking budget”, the markets seem to be adjusting to the RBI’s rather tepid growth forecast for 2HFY23. Obviously, the RBI does not share the enthusiasm of the government over public sector capex triggering a virtuous cycle of growth led by private sector investment.

The narrative of geopolitics (Russia-Ukraine conflict) and Fed tightening scaring the markets does not sound credible.

Russia and Ukraine have been at war for three decades, since the dismantling of the USSR. Eight year ago, in 2014 Russia annexed one of the larger provinces of Ukraine (Crimea) and markets have not cared much about that, just like it has learned to live with the perennial conflicts between Israel and Philistine; US and Iran, South Korea and North Korea, India and Pakistan; etc.

The US Federal Reserve started winding up its asset buying program (QE) last year and announced its intent to hike policy rates once QE ends in March 2022. There is no surprise for markets in this. There is overwhelming empirical evidence to suggest that Fed rate hikes that control inflation but do not hurt the growth have been usually benevolent for equity markets, especially emerging markets. The most hawkish forecasts are projecting the Fed policy rates to peak at much lower levels as compared to previous rate cycles. Building a disastrous outcome for markets like the 1980s or 2000 due to Fed rates may be inappropriate since in those cases rates peaked at 20% and 6% respectively, as against 3.5% worst forecast this time.

The argument of money debasement and hence rates peaking at lower level is actually favorable for equities, since it allows higher valuations to sustain for longer.

Another popular narrative on the street is that the ongoing correction may be a great opportunity to buy. Millions of experts on social media are saying with the benefit of hindsight that all such corrections in the past were great investment opportunities which people regretted later.

I see their point, but would like to understand where we stand in the current market cycle? If the current market is not complete yet, we may experience material pain in the coming months. In the past two market cycles (2006-2009 and 2016-2020), the market had given up most of its gain towards the end. In fact, the smallcap indices ended both the cycle with net losses. In the current cycle we are close to 10% off from highs recorded so far in the cycle. Both Nifty50 and Nifty Midcap are more than 100% higher from the starting point whereas Nifty Smallcap is 200% higher from the starting point. Never have the market cycles have ended like this.

We certainly have a long way to go in this market cycle. If the peak has already been recorded, we may see 25-50% correction in broader markets; else we may have some distance to move north. More on this tomorrow.

 The Indian equities performed decently in 2021. Investors would normally have nothing to complain about the returns on their equity portfolios.

·         The benchmark Nifty is up ~21% YTD2021. It is 6^th consecutive year of positive return on Nifty. Nifty has now returned positive return in 9 out of past 10years (2012-2021).

·         Nifty has averaged 15881 (based on daily closings) in 2021, which is 44% higher than the same average for 2020. Based on change in average, this is best performance since 47% gain in 2006; implying strong returns for SIP investors.

·         For long term buy and hold investors, five year rolling CAGR in 2021 is ~15.7%, which is best performance since 2013. Five year absolute Nifty return in 2021 is ~107%, also highest since 2013.

·         The market returns were fairly broad based in 2021. Smallcap (~56% YTD2021) and Midcap (~44% YTD2021) have done significantly better than Nifty (~21% YTD2021). Broader market indices are now outperforming the benchmark Nifty on 3yr and 5yr basis. The household (retail) investors investing in diversified portfolio have also therefore recouped the underperformance of 2018-19.

·         Nifty has outperformed most of its emerging marker peers in 2021; and has performed in line with the top performing major global markets US and France.

…but some concerns emerging

In recent weeks however the market has given some cause for concern that have clouded outlook for the year 2022. Having quickly recovered all the losses from panic reaction to the pandemic, and moving about ~50% higher than the pre pandemic Nifty highs of ~12500, the Indian equity markets now appear tired and indecisive.

·         After topping ~18600 in October 2021, Nifty is not back to ~17000 level, where it was in August 2021. However, during this 3200 odd point up and down journey of Nifty, the actual outcome might be very different for various investors, depending upon their portfolio positioning and activity during this period. Considering that the daily volumes were highest around the peak level of October 2021, it is likely that some investors got greedy at the peak and invested larger amount in mid and small companies. They may have lost 10-25% of his latest installment of investments.

·         In 4Q2021, Nifty has averaged over 17800, against the current level of ~17000. A large proportion of stocks are trading below their technical key levels, e.g., 200DMA, indicating underlying weakness in markets.

·         The market breadth has been consistently negative since August 2021.

·         Indian markets have outperformed most of the global peers in past 20months. The global investors are now looking at the underperforming markets in search of better returns. Many global brokerages like Credit Suisse, Morgan Stanley, CLS, Goldman Sachs etc., have downgraded the weight of Indian equities in their portfolios to allocate more to China etc. The global flows to India may therefore slow down further. Foreign investors have been net sellers in secondary markets for past many weeks.

·         RBI has started to normalize the excess liquidity through variable rate reverse repo auctions of 14-day and 28-day. Currently, INR6tn/INR8.6tn excess liquidity is being absorbed through VRRR auctions. Going ahead, the RBI plans to increase the amount and tenor of absorptions through VRRR. This could impact the cost of borrowing for market participants and therefore impact the market sentiments.

·         Despite recent market correction, greed continues to dominate fear and household flows remain strong. The probability of a sharper correction in broader markets therefore remains decent.

There are two types of investors in Indian stocks markets – (i) who own all Tata group stocks and all internet and related businesses like IRCTC, IEX, IndiaMart, InfoEdge etc.; and (ii) the others who own none of these. (It’s a Joke or Irony only time could tell.)

A survey of Indian investors indicates that presently the investor positioning and opinions are deeply and widely divided. The survey in the form of a free unstructured discussion with some professional, household and institutional investors was conducted over past two weeks.

Indian investors – A divided house

Based on the discussions, the investors in Indian equities could be divided into the following ten broad categories –

(i)    Fearful - Investors who are fully invested and are overweight in equities and/or cryptocurrencies but are uncomfortable with the current price levels and volatility. This category mostly involves High Networth households who have significantly increased their active involvement in the financial markets over past couple of years. Most of these investors have earned good return on their capital. They are moderately leveraged. Most of them have yet not defined any strategy to moderate their exposure to risk assets, though they are afraid of severe market correction and erosion in the value of their portfolios. Some of them are exploring investment in real estate by taking some money out from financial investments. They have been consistently reducing exposure to debt instruments and increasing allocation to equities and other risk assets.

(ii)   Fearless - Investors who are exclusively trading in risk assets like equities and cryptocurrencies, and are not bothered at all about the current price levels or volatility. These are mostly household investors (not necessarily high Networth) who have taken to trading in financial markets as their full time occupation in recent past. They enjoy the high volatility and are least bothered about the things like valuations, business models, sustainability etc. They have moderate to high leverage; and mostly have negligible allocation to debt securities.

(iii)  Optimistic - Investors who are deeply convinced about the “India Story”. They believe that the valuation premium for Indian equities is justified given the high growth potential, changing global supply chain landscape, increasing level of organized businesses and larger role of Indian businesses in the new economy. These are mostly professional and institutional investors. Many of these have recently increased their allocation to equities given the pressure on bond yields. Only a few of these would advise leveraged positions in equities at present level.

(iv)   Cautiously optimistic - investors, who are convinced about the long-term ‘India Story”, but find the present price levels unsustainable in the short term. These investors are a mix of professional investors, institutional investors and high networth households. They have been reducing their equity allocation for past couple of months. Paradoxically, some of these have increased the allocation to high yielding (credit risk) debt.

(v)    Hopeful - Investors, who misjudged the markets in the past 20 odd months. They either reduced their equity allocation significantly after pandemic breakout; or during the market rise in the past 6-9 months. These are mostly professional and household investors. They are overweight on debt, gold and alternatives like arbitrage funds that have yielded very poor returns over the past 20 months. These investors are sincerely hoping for a major correction in the equity prices so that they can correct their mistake by increasing their equity allocations. Ironically, many of these investors have increased their allocation to foreign equities in past one year to compensate for lower allocation to the best performing Indian equities. Their arguments for investing in Asian (mostly Chinese) and US equities are varied and mostly unconvincing. For example, a veteran investor allocated 10% of his portfolio to US Tech stocks, while vehemently arguing against the valuation of Indian IT and internet sector. Similarly, a professional investors, who listed meltdown in China as one of the key risks for the market, is invested in a global fund focused on Asian Tech sector (mainly Chinese semi conductor and internet stocks).

(vi)   Happy - Investors, who stayed composed and disciplined during the market volatility and religiously adhered to pre-determined asset allocation. These are mostly professional investors and high networth households. Many of them have changed their strategic asset allocation to increase the weight of equities in past one year; while maintaining a conservative debt profile. These investors are closely observing the markets for any lucrative opportunity, but are not perturbed by the present volatility.

(vii)  Dismissive - Investors, who have materially cut their allocation to risk assets like equities in the past 20 odd months and are regretting their decision badly. They are mostly household investors. They are regularly convincing themselves that the entire rally from March 2020 lows is farcical and the prices will correct to those levels in next one year. Though, many of these are actively looking at real estate to make up for the opportunity loss of equities. Interestingly, some of these are actively trading in commodities.

(viii) Hypocrite – Investors who are cautious and fearful in their personal capacity, but are advising others to increase the weightage of risk assets in their portfolios. These are mostly professional and institutional investors. A couple of fund manager who sounded extremely cautious in their comments, were actually seen aggressively marketing their small cap funds a few hours later.

(ix)   Explorers – investors who are consistently looking for profit making opportunities in the market, regardless of the benchmark index numbers, pockets of over exuberance and popular trends. These are mostly professional and institutional investors, who are either running ahead of the market in identifying new trends and rotating their portfolios to position for the likely emerging trends; or discovering the pockets of under valuations and positioning their portfolios with the assumptions that these pockets will soon converge with the broader market trends.

(x)    Observers – these are mostly passive or inactive investors, who observe the markets from a distance and have little position of their own. They are financially unaffected by the market movements; however many of them are very aggressive and emotionally charged about their opinions about markets. They love to express their views and offer advice to fellow investors.

While you discover what category you fall in; it might be worthwhile to also figure out- do you truly belong where you are, or you just drifted to this category unintentionally/unconsciously.

…and how they view the market

The investors in different categories analyze the present market conditions and trends from their own vista points. Obviously, they have divergent views, opinions and outlook for the markets. The following are some of the market views that are interesting to note.

Perception versus realty

While it is fashionable to talk about the stocks from some business groups (e.g., Tata, Adani etc.), the top gainers since first lockdown (23 March 2020) and second wave (01 April 2021) amongst the NSE500 group show no clear pattern or trend.

The top 25 gainer since first lock down do have significant participation of Adani group stocks and midcap IT Services, but otherwise the stocks and sectors are diversified. An overwhelming majority of stocks are small cap and there is no large cap stock in top performers. These stocks belong to a variety of sectors like IT Services, Energy, Telecom, Textile, Specialty Chemicals, capital goods, and pharma etc.

Contrary to popular perception, specialty chemical, pharma, and metals have scant representation in this group. Internet and retail are totally absent from this group. There is only one Tata Group stock (Tata Elxsi) in top 25 list, and no metal stock, except Jindal Stainless.

The list of top 25 underperformers is also quite random and lacks any clear trend or pattern. Apparently, Banks and Microfinance Institution appear to be top under performers. But most names included in the list have company specific reasons for their underperformance and do not necessarily represent any trend.

If we look at the market trends since second wave, a similar randomness is observed. There is no clear pattern or trend visible from the top outperformers and underperformers during April-September 2021 period. No Tata, Adani, Internet, Retail, IT services, PSU dominance is visible. Auto, Consumers and Hospitality stocks are also absent from the lists.

Trends and patterns since first lockdown till September 2021

(a)   More sectors have underperformed the Nifty50, then the number of sectors that have outperformed; implying that the rally since lows of March 2020 has actually been much narrower than it is perceived; even though the broader markets have outperformed the benchmark indices by wide margin.

(b)   The global trends (IT and Metals) have dominated the markets since first wave. Contrary to popular perceptions, Pharma has been an underperformer.

(c)    Financials have underperformed materially, despite significant improvement in the operating performance and asset quality.

(d)   Realty sector has outperformed though not significantly.

(e)    Small cap (123%) and Midcap (76%) have significantly outperformed the benchmark Nifty (32%).

(f)    FMCG (and hence MNCs) have been the worst performers in this period. It would need lot of explaining to rationalize the outperformance of commodities when the consumption demand and capacity utilizations are at poor level.

Trends and patterns during April 2021 to September 2021

(a)   In post second wave period, more sectors have outperformed the benchmark Nifty than the number of sectors that underperformed. The gap between the performance of smallcap/midcap and benchmark Nifty also widened further.

(b)   The domestic sectors like Realty, Infra, PSUs, Media and power joined the list of outperformers alongwith the global sectors like IT Services and Metals.

(c)    Surprisingly, Automobile has been the worst performing sector in this phase, despite some superlative performance from auto major Tata Motors.

(d)   Financials continued to underperform, despite popular perception of PSU Banks doing very well.

(e)    Pharma and Consumers also remained notable underperformers.

(f)    Given the rise in inflation (building material), rise in bond yields and expectations of monetary tightening; the bullishness in Realty while the lenders continue to underperform and the household participation in equity market is rising sharply is also a subject for deeper analysis.

Given the total randomness of the market performance, it is difficult to draw any meaningful conclusion from the performance during April 2020 and September 2021.

So far there is little sign of any sector’s overwhelming dominance on the market. Nonetheless, there are some small pockets of over exuberance and unsustainable valuations, where the investors need to tread with extreme caution.

In particular, the themes like renewable energy, ecommerce and hyperinflation have driven prices of some stocks to levels which may be unsustainable even if we extrapolate current business trends to 20yr forward.

Indubitably, renewable energy is a paradigm shift in global economics and may be a great business opportunity; but the assumption that all renewable energy producers and their ancillary units will make enough money to justify current valuations appears mostly off the mark.

The assumptions that current commodity prices will sustain the slowing growth, tightening money, declining consumption and normalizing supply chains even for a year appear absurd.

It is therefore likely that we might see a major sectoral rotation in next 6months, while the present broad trend (broader markets outperforming the benchmark) continues.