May 05, 2024    

This week we dwell on stocks movement that surely point to a froth in certain pockets –

Check this company – Hindustan Motors which has no operations but the stock price has moved up significantly

• Despite relatively subdued macro nos, the US markets and also the Nasdaq on the back of a huge buyback by Apple gained last week and expectations of rate cuts

• Indian markets were flat while mid-caps in pockets did well. The markets corrected on worries about imposition of capital gains on normal tax slabs (We believe at worst they would increase the capital gain duration to begin with and not tamper with the rate)

• Some pockets look extremely frothy and as shown above, one needs to exercise immense caution in these segments

• FII’s once again were big sellers in the month of April

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Dear Team, you have been bullish on the equity markets and continue to be so, however at the same time you mention about exaggerations about valuations, how am I supposed to infer your position?

Hello Everyone


Thanks and to put things in the perspective of short and long term what we believe is as follows

Long Term

Indian Equities are fairly valued, however due to the following factors we will continue seeing buoyancy in Indian equities. The downside seems at worst 15%-20% while the upside could be much more and hence in the visible future we recommend holding on to Indian equities for all goals > 5 years.

1) The liquidity that keeps coming in and expectation of household savings moving up from 4% -double digits, there will continue to be a floor for equities,
2) The economy is well poised with a great blend of demographics, low interest rates and decent growth,
3) FII’s are yet to participate and sooner or later should return

Short Term

The market texture especially on the small and micro cap side (not all but few pockets within this) look to be quite stretched and at the mercy of operators and a high likelihood of seeing a massive crash which could also rub off on the other segments.

Due to this we are a little wary especially of investing in mid and small caps as of now and would prefer staggering these purchases while large caps can be invested faster as segments like private banks etc. will emerge with value buying sooner or later.

Hence to summarise:

1. Investors with high allocations to small and mid caps should relook and if needed rebalance (NOT EXIT)
2. Direct equity pockets in micro caps should be carefully examined
3. Goals that are < 6-12 months away and has equity earmarked to it should partially exited for now and the rest a staggered exit over next few months
4. For investors who have a > 36 month perspective the only thing to do possibly is to REBALANCE equities and mid and small cap basis one’s asset allocation

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