‘Stocks wildly overvalued...’: Deepak Shenoy draws attention towards current stock market conditions

Deepak Shenoy, the founder and CEO of Capitalmind, in a post said that many stocks are wildly overvalued. He said those who have been invested and have decades of experience know that stocks can remain overvalued and get even more so. 

Shenoy wrote on X: "This is not a great market to keep harping about valuation. Nearly everyone who's been around longer than 5 years knows that many stocks are wildly overvalued. But those with decades of experience know that stocks can remain overvalued and get even more so. It's time to be aware that you're all riding a tiger. If you're 10% cash, you're not in cash. That is 90% invested. And if you're even in "largecaps" or "defensives" that will still mean you will fall like crazy when you do; in fact the "offensives", i.e. everything other than what you own, could go up another 50% before falling, and end up bottoming out higher than where you end up."  

Shenoy asked the investors to “be aware” of the risks and likely fall when it happens. 

“It's time to be aware that you're all riding a tiger. If you're 10% cash, you're not in cash. That is 90% invested. And if you're even in “large-caps” or “defensives”, that will still mean you will fall like crazy when you do; in fact, the “offensives”, i.e. everything other than what you own, could go up another 50% before falling, and end up bottoming out higher than where you end up,” Shenoy noted.

Mad market, says Shenoy

Shenoy said the stock movement has “zero predictability”. Terming it a “mad market”, he said the market conditions will remain so until it is not. 

Stay cautious

Shenoy noted that investors should be aware of the situation and risks, and enjoy it while it lasts.

“There is zero predicting ability on stock movements right now. It's a mad market and will remain one until....it's not. The point isn't to keep warning people that it's getting too hot. I've heard this from last December and we're up some 30% or more since. It could fall tomorrow, and it could fall 10 months from now. The better thing to warn people is to stay nimble and stop loving your stocks. When markets fall, even the ones that give you the most smiles today might need a harsh goodbye,” he noted.

“But till then, accept all the incoming awesome up moves that you cannot explain. You don't have to explain everything good that happens to you, and you probably don't deserve it, but you're getting it anyway. Happiness doesn't need entitlement - it just needs the ability to sit back and enjoy it while it lasts,” Shenoy added.

Overvalued stocks

Earlier this week, Kotak Institutional Equities recently released a report that identified companies in the market whose market capitalisation is inflated despite a lack of opportunities to generate profit margins.
The report highlighted a clear disconnect between narratives and numbers, with certain stocks' market cap not matching their best-case profit projections.

Kotak made reference to BHEL as a prime illustration of an inflated market capitalization. Last year, the surge in BHEL's stocks resulted in an increase of Rs 77,800 crore in market capitalization. This increase significantly overshadowed the profit pool of the thermal BTG industry, which stands at Rs 32,000-64,000 crore, assuming India achieves its FY2032 goal of adding 80GW of new thermal capacity. When evaluated on a net present value (NPV) basis or with lower profit margins factored in, this profit figure diminishes even further.

The current market capitalisation of BHEL suggests that the company would need to consistently execute orders for 25 GW of thermal capacity annually, which is an impractical expectation, the report noted.