There is a big divergence between how the stock market is and the economy is faring. One seems to be hitting all-time highs while the other is hitting lower levels with each passing month.
In this ease, growth slowdown has deepened as IIP performance for the second consecutive month points to a deep slump in economic activity. Industrial production data contracted for the second month in a row to 4.3 percent in September, its lowest level in almost 8 years.
In terms of markets – the S&P BSE Sensex, which has risen over 11 percent so far in the year 2019, hit a fresh record high of 40,749 on November 8, while the Nifty50 also reclaimed 12,000 levels in the week gone by.
Equity markets are inching towards record high, but the economy seems to be struggling, which puts investors’ in doubt about investing at record highs. We spoke to experts to help us understand the dichotomy and if investors did the right thing investing in markets at record highs.
Investing when the market is at a record high is not recommended by experts, but if someone is planning to do so, then they recommended waiting for a dip as the strength is still intact and most of the quality stocks are still trading at attractive valuations when compared to historical averages.
“There is an economic slowdown and earnings growth is subdued. While the government has been doing its bit on the economic revival, it will take time for the recovery to happen,” Siddharth Mehta, Founder & CIO at Bay Capital told Moneycontrol.
“These times of a slow down are the best time as an investor to analyse which businesses are doing the right things for the long term, which businesses are strengthening their franchises and will come out stronger,” he said.
Based on the current scenario, the government has been addressing plenty of issues that plague the banking sector and hinders the investment cycle. But, the effect of the same will take some time, and when it starts to reflect, the sentiment will also reverse.
The current slowdown is not India-specific, but is global in nature. Hence, investors should remain patient as wealth creation might take some time. But the prices at which stocks are available are still attractive if someone has an investment horizon of 3-5 years.
“At present, each country is facing the problem of recession. In such a type of scenario, if the government brings necessary changes and reforms to boost the economy then the upside for the market would be un-imaginable,” Shrikant Chouhan, SVP, Technical Research, Kotak Securities told Moneycontrol.
“More than this, we feel that investors can start investing at any level as nobody can perfectly tell you the perfect time or right level to invest in the market. However, investing in strong companies is the simplest formula to earn returns from funds deployed in the stock market,” he said.
Chouhan further added that those who are ready to take more risk can invest in mid-cap funds or stocks to multiply their returns. However, in such type of investments, the exit is more important than the entry where a lot of people get stuck.
Experts are of the view that the positive trend in the market is likely to continue, and investors will be better off putting money into markets on dips amid global and domestic headwinds.
The market is on track to hit fresh record highs, and the rally could well extend towards 12,200 to 1,2600 on the Nifty, which translates into a gain of nearly 6 percent from November 11 closing of 11,913.
“We could have hiccups in the short-term due to the premium valuation of blue-chips, fiscal deficits, and slowdown in the trend of Q2 result which is at the last phase of the announcement. We had a target of 12,600 for Nifty50 which we are maintaining,” Vinod Nair, Head of Research at Geojit Financial Services told Moneycontrol.
“It is at a good time to consider investing in mid and small caps which are available at reasonable valuation and ownership of institution has reduced in the last two years. We expect such stocks to outperform in the future as the economy improves and systematic risk reduces,” he said.
Vishal Wagh, Research Head at Bonanza Portfolio is of the view that every dip into the market is a buying opportunity if one looks at outperforming sectors of stocks.
“Market may test 12,200 levels in the coming few months. The investor should buy outperforming stocks only in a staggered manner. Keep booking profits at regular intervals and keep a risk management principle with high priority,” he said.