4th June 2024, election results came as a surprise. Since then a lot of chaos has been settled with the old government taking over for the next 5 years. All the important cabinet positions have been restored.
The market continues to be euphoric and expensive stock market has become more expensive.
Markets respond to the current data and that indicates some level of comfort, and a stable government. The recent confusion concerning who is forming the government and stability is addressed.
Since now we have a coalition government headed by our Prime Minister, we may be looking at more populist reforms. We also have a strong opposition this time and they may block any economic reform that comes along.
As an investor, this is a concern, where corporate profitability may be hit. But who knows, the Vajpayee government brought very good reforms despite being a coalition government.
Global growth is still a concern and a lot of companies will continue to face problems catering to global clients.
Any mutual fund house follows a model portfolio and they are not required to time the market. They expect investors or their financial advisors to take that call on what proportion of money goes into equities.
Interestingly, in the last few years, a strong inflow of funds from domestic retail investors has helped markets not to fall massively (but rather grow).
In the last few months, we have seen foreign institutional investors withdrawing money, and domestic institutions (MFs) buying. This ensured that the market did not fall.
However, stock price movement is associated with the profitability of the company. 2004-09 saw a massive stock market performance despite a coalition government.
Let’s look at how your portfolio may perform in the next few quarters.
Bond market
We are at the higher end of the interest rate cycle and may see interest rate reduction in the next few quarters. This will mean, your short-term debt/FDs will earn less at the time of renewal/new investment.
Long-term debt may do well as the interest rate falls.
Equity market
Equity markets have become expensive especially small and mid-cap equity. The euphoria continues but should settle down soon. This is a time to be extremely cautious of stock selection. Anyone who gives respect to fundamentals will be able to do a better stock-picking job.
Large-size firms may give less return but may have better risk-adjusted return opportunities.
Real estate
The real estate sector has done exceptionally well in big cities. Luxury and ultra-luxury may continue to do well but the bubble is in the making. Be extremely cautious.
India is well-placed to grow its GDP and occupy the top 3rd position in the world’s economy. A lot has been done but a lot more needs to be done.
The next 5 to 10 years look quite promising for India. However, the current market indicates euphoria and requires us to be extremely cautious.'Be Fearful When Others Are Greedy And Greedy When Others Are Fearful' – Warren Buffet
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