Market increased the confusion of investors
At this time, not only India, the stock markets of many countries are on high. New record every day. In just one year, the Bombay Stock Exchange Index, ie Sensex, rose more than 13 thousand points to a record high of 60,000. Six years ago it was at 30,000. Most of the investors who had invested a year or earlier have become rich this time. Experts were talking about such a boom in their tongues, but none of them were sure that the market would reach here.
effect of low interest rates
Today the condition is that the shares of many companies have more than doubled. This market has definitely given something to everyone. Even though mid-cap stocks have been sluggish for a few days now, but at some point investors have cut silver in them too. That is, the environment is of earning and big and small, domestic and foreign investors are constantly coming in the stock market. The flow of money, which is called liquidity, is increasing.
The biggest reason behind this is that the interest rates are at the lowest level in the whole world. In America-Europe, interest rates are zero or minus. This has been a great opportunity for foreign investors i.e. FIIs. They have invested extensively and continue to do so. For the third year in a row, foreign investors have invested $ 9 billion. He is earning from here and is also investing. They have no shortage of dollars and are eyeing emerging markets around the world. They are not letting go of any investment opportunity. Foreign experts are giving importance to the Indian stock market right now. It is a different matter that when they suddenly disappear, it is not known. But it doesn’t seem likely yet. Right now the Ganges is flowing fast.
Interest rates in India have also come down considerably. Banks are giving interest only up to three-and-a-half percent. Now all the schemes of small savings have started getting very low returns. Real estate is going through a period of slowdown and oversupply. There was a huge rise in gold, although now its brightness has slowed down a bit. In fact, due to the corona epidemic, people were locked in their homes and they had no source of additional income. In such a situation, the stock market came in his work. As a result, there was an influx of domestic investors into it.
Today, investors are investing in the market in a big way through mutual funds and SIPs and about 70 percent of them are people who have never invested in the stock market before. On the other hand, SEBI has also attracted people by making it easy to open a demat account. Not only this year but last year also lakhs of new demat accounts have been opened. According to SEBI data, from April last year to January this year, more than one crore demat accounts were opened. At present, more than seven crore demat accounts have been opened in the country. New technology and apps have made investing a whole lot easier. Now new investors are continuously investing money both directly and also through mutual funds. The mutual fund industry is succeeding in attracting people towards it with its slogan ‘Mutual Fund Sahi Hai’. Statistics show that large scale investments in the stock markets are being done through them.
Although earlier it was said that the stock market is the mirror of the economy, but due to the leaps made by the Sensex and Nifty in the last few years, this thing is being proved wrong. The companies are showing good results now, but their stocks have become very hot. Many of these have a significantly elevated PE ratio, which is a measure of the valuation of a stock. Shares have risen more than GDP did not.
The ratio of market cap to GDP has crossed 130 percent. The market has overtaken the economy and this is a matter of concern as it shows that the Sensex and Nifty are no longer on solid ground. These companies are running from now on assuming earnings ahead of three years. Higher valuations have their own risks and thus the risk of a market crash increases. Now our stock market is pointing in that direction. It is clear that in a fast moving market, the break can happen at any time and it can fall at any time. This decline can range from 10 to 25 percent. And for that investors should be prepared.
If the market explodes, then there will be an outcry only once. But one thing has to be remembered in the way that the fall always sets the foundation for the bullish again. In that case it would be foolish to sell your shares and walk out because we have seen the market fall many times before and then get up. It just takes a while to wait. If you are thinking that the stock market is a gambling house then you are absolutely wrong. If you invest money here after thinking about a target for a long time, then there is no reason why you will be shocked. Yes, you can book profit now by selling those stocks which have gone up significantly and are prone to fall. But small storms will keep coming, why be afraid of them? To earn good money, you have to be patient.
Disclaimer: The views expressed above are those of the author.
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