Stock Markets are buoyant because of excess liquidity in the market. Excess liquidity is because of Central Banks loose monetary policy across the world. Central Banks have followed an easy money policy to offset the economic damage caused by the pandemic. Easy money policy or loose monetary policy refers to policy of Central Banks like RBI to keep interest rates in the Country low.
Some other reasons for a buoyant stock market in India is because Foreign Portfolio Investors have pumped in several billion dollars in the Indian Capital Market in the last twelve months. Interest Rates are also at rock bottom. So avenues for good investments are few resulting in surplus money finding its way in the Indian stock market.
The Market Capitalisation to GDP Ratio stands at 124% which is very high. A good market capitalisation to GDP Ratio is below 90% which indicates a fairly valued market. The Sensex Price to Earnings Ratio is over 31 indicating a highly overpriced market. Nifty PE stands at 27. A good Price to Earnings Ratio is below 20 which indicates a fairly priced market.
The current market valuations are very high but if the Corporate Earnings keep pace with the valuations then the valuations will seem reasonable in a year or two.
In my opinion one should continue with your SIPs but avoid any lumpsum investments at this time. A good balance between your Mutual Fund investments could be 30% in Large Cap Funds, 15% in Mid-Caps and 10% in Small Cap Funds. 15% in certain sector funds, 30% of your investments could be allocated to liquid funds and Short Duration Funds each to save for opportunities like last year’s market crash.
If you have not yet designed a Financial Plan for yourself, it will be a good idea to design a financial plan for yourself after taking into consideration your Risk Profile.
There are certain themes which have done well over the last several years like IT, Consumer Durables, Finance etc. It could be a good idea to have a small allocation to such funds too.
Please read all scheme related documents before investing and setting your asset allocation, or consult an Investment Advisor.
Mungekar Wealth 