The wild gyrations in BSE Sensex and NSE Nifty ahead of the formation of a BJP-led National Democratic Alliance government have made it highly risky for investors to put money in the stock market as macroeconomic indicators continue to be on a sticky wicket.
"Now there is no political risk for the next five years. But economic conditions are not very rosy and there is a long way to go in improving various parameters like corporate earnings and manufacturing sector growth. Investors must remain cautious," says G Chokkalingam, Founder, Equinomics Research and Advisory.
Sensex gained 1,000 points to breach the historic 40,000 mark for the first time today as early counting of votes predicted a return of Narendra Modi as the Prime Minister. Nifty too crossed the 12,000 mark, setting a new record. By the day's close, however, Sensex was down 299 points and closed at 38, 811. NSE Nifty lost 81 points to close at 11657.
UR Bhat, Fund Manager, Dalton Capital Advisors said this rally is not sustainable. "This is just a celebration of BJP's victory. Risk is very high for investors and they should not get trapped in this euphoria. Even after exit poll results earlier this week, markets went up but also came down quickly. The harsh economic reality will soon play up," he cautions.
Sanjiv Bhasin, Executive VP markets and corporate affairs, IIFL, says there has been a dichotomy in the market. "While the broader market has underperformed in the last one year, a select band of large caps has kept the index going up. The renewed bout of continuity of governance will be a big game changer and the broader market will start to outperform over the next six months," he says.
As a result, investors right now would be better off not investing directly in equities. "It is best for customers to put money in SIPs (systematic investment plans). So the mutual fund route is the best way as SIP is the new gold. Equity continues to be the best asset class," he says.
Chokkalingam says, investors must opt for a stock specific strategy as some sectors are still struggling. "SIPs in mid and small cap space will remain a good bet as this space is very volatile. One can make money in SIPs with small and mid-caps, which have been beaten down a lot in the last few months," he says.
"These rapid ups and downs in the market are not for the faint-hearted or small investors but only for meant for traders," cautions Bhat.
While markets are euphoric about the return of stability at the centre, macroeconomic indicators are currently not in India's favour. FDI contracted 7 per cent to 33.49 billion dollars in April-December 2018, oil prices are rising, corporate earnings have been poor and manufacturing sector growth hit an eight-month low in April. Moreover, an escalating trade war between the US and China also adversely affects the Indian markets.
The total market capitalisation of all the BSE-listed firms soared to a record high of around Rs 159 lakh crore in August 2018. "We are still down Rs 7.5 lakh crore from that high while another Rs 8 to 9 lakh crore was incrementally added by just 15 index stocks," points out Chokkalingam.
That's why Bhasin's advice is that investors should not try to time the market as it may take some months for macroeconomic indicators to improve. "However, India remains the best place to invest and we will see huge FII inflows in the next few months," he adds.