What's NEXT in the Financial Market?
By: Imperial Finsol Pvt.Ltd.
What we have to remember is that whenever the liquidity start fading off, the valuation bubble in many sectors can break and can put many portfolios, which are betting on leveraged companies, can come under severe stress.
We see more direct equity investors emerging in the last 3 months as most of them were sitting at home, but we believe the situation can change dramatically in few months and when the tide turns, we would all know who all are swimming naked.
You may have a question that how is we thinking about the markets at this juncture?
At present, the removal of lockdown in many parts of the world is creating positivity in the markets, PMIs from most of the countries are smartly rebounding except for India and commodity prices also started moving up. By virtue of the Nifty50 Index position, 38% of the weights are in Banks & Financial stocks, which make Index Investing very challenging.
The quantum of NPAs which will be added to the existing NPAs because of Covid-19 related impact could be to the tune of Rs 6-8 lac crores as per experts or even more. If we look at the price to book valuation adjusted for the NPA impact, the Price to Book Value of Nifty50 Index is anywhere between 3.2-3.3x trailing multiple.
However, a quick recovery in the economy will result in lower concerns about credit costs and sharper re-rating for the Tier-2 and Tier-3 banks and NBFCs.
We were expecting this rally to happen because of the massive quantum of liquidity pumped in by USA but currently watchful on markets. We see more disadvantages to happen because of 3 major reasons: 50:25:25 Rule Still works?
1) Evaluations have moved up quite a bit, markets are not inexpensive anymore
2) Opportunity of instability increasing in the next 4 months as US Elections are approaching
3) Salaries growth will be dejected significantly in this financial year
We believe Small Cap Index can give the best returns in the next 3-5-years period followed by Mid-Caps and then Large-Cap Indices (https://www.imperialfin.com/
SWP is another good way to invest in the market as well so that regular flow at every level of the market gets done.
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Imperial Finsol Pvt.Ltd.