The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.
If we had known in April 2020 that the stock markets would make a swift recovery after the crash, soar past the pre-crash levels and keep going up for a year and a half, we would have, perhaps, changed our equity allocations. But who knew then that this could happen? Still, some investors may have done that. Some may have baulked at the crash and exited. Some may have had the courage to sit out, a courage that usually comes after past episodes of crashes when you sold in panic and then regretted in leisure. And, finally, some entered the market after the rally began and have benefited (some call it the winner’s curse) from it continuing.
But that’s in the past. Here we are with the Sensex having crossed 58000. Those who are still out of the market or have short positions are plotting reasons for its crash. Those with an inside view are looking for reasons why it could go up further or maybe praying that it stays up or does not suffer a hard fall.
Are markets overvalued is a question that’s popped up on occasion in this one and a half year journey of the markets. This is as good a time as any to take another stab at it. In today’s edition, we look at the fundamental lens investors use to gauge how stocks are valued, see what the metrics say and how to interpret them. For instance, India’s market capitalization to GDP is at 111 percent compared to its long-term average of 103 percent. Is that a sign or is this time different? While a price to earnings ratio gives you one picture, compare price to book and a different one emerges. Do read.
One key piece in determining the direction of markets is the US Federal Reserve’s anticipated withdrawal of its extraordinary monetary stimulus and eventual hiking of interest rates. Recently, the Fed Chair’s Jackson Hole speech calmed markets as Jerome Powell was able to convey a message that the US central bank would not rush into an asset purchase taper unless the data supported it. As if to support that, the August jobs data was much lower than expected.
But a top Fed official, James Bullard, president of the St Louis Fed, has pushed for a quick taper despite this, in an interview with the Financial Times (free to read for Moneycontrol Pro subscribers). He argues that there is plenty of demand for workers and more job openings than unemployed workers. He wants the Fed to look through the short-term volatility in these numbers and see whether the average still shows substantial gains. Of course, he has been in the withdraw-the-taper soon camp even earlier, saying that will give the Fed the legroom to increase rates in 2022 if the situation warrants it.
If his view sent a shiver down your spine, read this piece published yesterday evening, it argues that the Fed taper risk is much ado about nothing.
Even as we ponder over what’s going to happen in the next 12 months or so, it’s important to move past the immediate future and take a longer view. Join Manas Chakravarty’s journey into a new economic future, as he makes a case that the world at large will not go back to business as usual. He writes: “From climate change to pandemics to de-globalistion, from negative interest rates to record debt burdens, from new age platforms to the Internet of things and artificial intelligence, from demographic change to the Chinese geopolitical challenge, an age of disruption looms before us.”
Dive into our research team’s insightful investment views
Why Zensar offers margin of safety despite its outperformance?
Saregama: After a sharp run-up, is it the right time to book profits?
Dhanuka Agritech: Looking beyond rains for future investment
What else are we reading today?
The Green Pivot: Green finance needs more UK-like pacts
Interview | Carborundum is open to acquisitions for core business growth: MD Ananthaseshan
Fertiliser and agrochemical companies face multiple headwinds in FY22
In Charts: The year so far for equity mutual funds
Technical picks: LIC Housing Finance, Muthoot Finance and Bharti Airtel (These are published every trading day before the markets open)