Investors need to be more careful in the current market while investing as it tends to bring investors in and then trap them. Even after the reopening of malls, hotels, restaurants, shops, and cinema halls have majorly remained empty. But the domestic equity market is overflooded with traders.
Almost 18 lakh new trading accounts were opened with Central Depository Service (India) in the month of March, April, and May against a combined opening of 8.41 lakh new accounts during January-February, 2020.
There’s a very high probability of new entrants are to be the happiest lot on Dalal Street who witnessed the benchmark BSE Sensex gained 35 per cent from the 52-week low hit on March 24, 2020. Over 85 per cent stocks as per the data have delivered positive returns to investors during this time frame.
But on the other hand, analysts are growing suspicious about the rally by saying it is difficult to lose sight of the hard macro realities and this rally is just not justified.
Milan Sharma, MD, Rivergate Capital Partners said,” This is just a liquidity-driven rally. FIIs are continuously covering shorts since the end of March because of excess liquidity. The moment something goes wrong in the global market, there will be apprehension. Domestic equity can be corrected 20-30 per cent very easily because of ground-level reality challenges.”
Nifty has advanced from the low of 7,511 to 10,328, providing a solid return of 37 per cent in a very short period of time.
In the Sensex pack, stocks that have risen 30-85 per cent from their March lows are Voda Idea, M&M, Reliance Industries (RIL), Sun Pharma, ONGC, Hero MotoCorp, Bajaj Auto and Bharti Airtel. About 54 Mid-caps and small-caps have doubled their price during this period.
Market veterans warn new entrants who have tasted these returns are at a very high risk of burning their fingers. The problem is people don’t understand the severity of the situation i.e., risks. The market tends to play smart tricks by bringing investors in. Any sudden correction makes investors bring in more money to average losses and there they got stuck for 1 or 2 years.
Prabhakar also added for investors to be careful. ” We are in a bad market phase and things are not seeing getting any better so far at ground level. I can see the Nifty to hit 6,200-6,300 points in next sell-off.”
Taher Badshah of Invesco Mutual Fund, says the market is way beyond their point of peak fear.”As there is now very less chances of Global as well as India’s equity market to revisit their lows seen in March 2020 because of getting control over the pandemic. Strong fiscal and monetary stabilization measures have been taken by the government along with strict lockdown and social distancing initiatives. The development of treatment or cure of the virus is also in progress across the world. It would only take a piece of significant bad news to hit the march low level again,” he said.