Jotting Plus : Bulls On A Rampage

Afrenzied run has gripped the stock markets, and going by the excitement,  nothing can stop the bulls now. The weak GDP numbers, showing domestic growth at a mere 5.7 per cent, has not hampered the bull-run. The BSE Sensex zoomed to 32,433 levels, rising 21 per cent so far this year. The Nifty, too, scaled its all-time high and rushed past the 10,000 mark once again.

It’s the domestic liquidity that is seeing a rally never seen before on Dalal Street. Inflows in the domestic mutual funds have been the surprise factor over the last year. India has received inflows of Rs 20,000 crore in domestic mutual funds in August 2017. Says Gautam Duggad, head of research, Motilal Oswal Institutional Equities,  “Continued inflow in domestic funds, benign interest rate environment, a stable currency coupled with favourable global cues is driving markets higher. Anxiety in global markets over North Korea has tapered off.”

There’s just too much money sloshing in the domestic capital market. A recent Rs 400 crore from Capacit’e Infraprojects witnessed an overwhelming demand of over Rs 52,000 crore from domestic investors. In the market, domestic mutual funds are said to be sitting on cash levels of over Rs 40,000 crore waiting to be deployed in the market.

Mutual funds (MFs) are seeing a surge in inflows through SIPs. In August, MFs saw inflows of Rs 5,206 crore through the systematic investment plans (SIPs), largely being done in equity mutual funds. In April 2017, this SIP amount stood at Rs 4,269 crore, showing that nearly Rs 1,000 crore of fresh SIPs have been added in August.

But there’s one concern despite the strong inflows. Domestic investors are overlooking the rising valuations. Currently, the Nifty is trading at a PE of 26.24 times, which is quite high. The Nifty’s all-time high valuation was 28.3, hit on 8 January, 2008. This level is now within striking distance. If the Nifty rallies another 900-odd points and the gush of domestic liquidity continues, we could easily clear this hurdle.

Ever since this bull phase began back in February 2016, mid- cap and small-cap stocks have been on a tear. The PE levels of the Mid-cap 100 index has zoomed to a whopping 50 times earnings.

Says Duggad, “We believe while valuations are not euphoric, they are rich vs. long period averages and therefore, support from earnings pick up is critical to sustain these valuations, going forward. We prefer large-caps to mid-caps owing to valuation gaps.”

Retail investors have to exercise patience in this market.Every now and then, the stock market will correct, and experts advice that such corrections should trigger the buying signal.

                – Clifford Alvares