/Long-term investor says this market is not in the safe zone

Long-term investor says this market is not in the safe zone

NEW DELHI: With three experimental Covid-19 vaccines showing promising signs and the stock market hitting new record highs every other day, is the uncertainty behind us?

Not yet, warns Shyamsunder Bhat, who is a long-term investor in domestic equities as the Chief Investment Officer of Exide Life Insurance. He says the launch of a vaccine will not solve the problem immediately for investors. “Not just the vaccine launch. The market will wait for a few months to see the efficacy of the vaccine before concluding if the uncertainty is behind us or not,” Bhat said.

Besides Russia’s Sputnik V, vaccines being developed by Pfizer-BioNTech, Moderna, Pfizer and Oxford-AstraZeneca have reported over 90 per cent efficacy in preventing Covid-19. Pfizer and BioNTech hope to start delivering their vaccines in the market as early as next month after getting necessary regulatory approvals.

But Bhat, a market veteran, says for Dalal Street for achieve stability, both Covid vaccine and the availability of liquidity would be important. “Central banks’ firepower may be somewhat limited compared with what we have seen in last six months. The central banks, going forward, are likely to have an accommodative stance, but compared with the kind of liquidity increase seen in last six months, the incremental rise is likely to be smaller from here on,” he said.

Like several others in the market, Bhat is worried about lofty valuations.

“Considering the rally seen in domestic stocks over the past few months, valuations are already factoring in a strong FY22, and to some extent the FY23 numbers too are in the price in some cases,” Bhatt said, adding that economic fundamentals need to improve for a sustainable rise in the market.

Bhat said the sharp rise seen in midcaps and smallcaps has been due to retail participation. “We hope those who have entered the market in last six months have a longer-term outlook. Many of them may not have experienced such sharp correction in the market in the past,” Bhat said.

So how should one pick stocks in such a market? Leave it to the experts, he suggests.

“Ideally, retail investors should invest in professionally managed funds, be it mutual funds or insurance products, rather than risking a significant part of their investments by picking stocks on their own, or going with the market momentum. Unless they have the ability to do stock research themselves, they should not dive into stocks independently,” he said.

Pointing out how companies with higher growth have continued to command higher P/E multiples in the last few years, Bhat said value stocks have become cheaper and are yet to find favour.

“However we could eventually see some allocation moving into value stocks, where growth may be nil or modest, but which are attractive in terms of valuations and where companies themselves do not have any balance sheet or corporate governance concerns,” he said.

With the Indian economy still in a recession technically, investors who are uncomfortable with pricey valuations in the ongoing bull market have chosen to keep their powder dry and wait for the bubble to burst.

“It is difficult for anyone to time the market, because you have to time it right twice – while buying as well as while selling. Some retail investors might have got their entry time right by investing at the lows of March and April, but it is also important to exit at the right time if specific stocks or sectors exhibit bubble-like valuations,” he said.

According to Bhat, the comfort level on Nifty is not really very high. “There is the possibility of a correction. Given the unpredictability of the market, the ideal strategy is to follow systematic investing by staggering your investments and buying through the ups and downs of the market,” he said.

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