Is it the Right Time for Retail Investors to Enter the Stock Market?

Talk to someone in the stock markets today, and the common refrain is, “There is too much negativity all around.” And it is not without reason. A mix of macroeconomic and geopolitical concerns—inflation, crude oil prices, hawkish central banks and war—is affecting stocks globally, including India.

As of May 18, the benchmark S&P BSE Sensex is down nearly 13 per cent compared to the high of 62,245.43 it touched in October last year. In the current year till date (May 18), it is down a little over 4,000 points or nearly 7 per cent. The broader Nifty, which is more closely tracked by traders and derivatives players, was well above the 17,000-mark at the start of the year. It fell to a low of 15,671 in March and was at 16,240 as of May 18—down nearly 6.5 per cent in the current calendar year. In a report released on May 16, Bank of America lowered its base case Nifty target to 16,000 from the earlier 17,000. “We see flattish market returns from current levels… on faster than earlier expected tightening,” the report said.

Has the recent correction made India an attractive investment destination? What does it mean for the average investor? According to Piyush Garg, Chief Investment Officer of ICICI Securities, the near 10 per cent correction from the 18,000-levels last year has brought the market to its fair value of around 19.5 times trailing 12 months earnings per share compared to the 10-year bond yield of around 7.3 per cent.

“Relative to other emerging markets (EMs), India may still be overpriced but that has been the case for the past eight years where India has commanded a premium over other EMs owing to its demographics, stable government, [and] domestic flows that have grown to counter any selling by FIIs,” says Garg.

Incidentally, the global geopolitical situation has unnerved many, including foreign investors, who have been net sellers of Indian stocks for the past eight months, with cumulative net sales of nearly $26 billion.

Meanwhile, Sanjiv Bhasin, Director at IIFL Securities, believes that Indian markets are in the last leg of the sell-off and might see a rebound soon since it is in the oversold territory. “The long-term allure of the India story remains intact. In fact, it has increased in the past two years as global manufacturing is moving away from China,” says Bhasin, while acknowledging the fact that global risk sentiment has weighed on India for the past couple of weeks on the back of interest rate hikes by central banks across the world.

The journey from a $3-trillion economy to a $6-trillion economy by 2030 will bring multiple highs for Indian markets, says Bhasin.

Garg of ICICI Securities also believes that if somebody is on the sidelines, then they may look at entering the markets at the current levels. The time for investors seems ripe.

@ashishrukhaiyar