Stock Market Overview : After the results of the Lok Sabha elections, the stock market has seen a significant rise. After a huge correction on the day of the results, the market recovered strongly and made records one after the other. In Modi 3.0, the Sensex crossed the level of 81900, while the Nifty touched the level of 25000 for the first time. Experts say that after the election results, there has been a rally in the market in most of the time periods and this rally has been more widespread than the previous rally. In this, instead of a rise in selected stocks, most segments have seen a rise.
How will the stock market be in the future, is large-cap or mid-cap and small-cap better for investment? Vinay Paharia, CIO, PGIM India Mutual Fund has given detailed information on the important reasons behind the strong growth of the Indian economy and the future outlook of the stock market.
How will the market be in the remaining months of this year?
The stock market achieved the milestone of $4 trillion in December 2024 itself. At the same time, this year the market capitalization of the Indian stock market has reached $5 trillion. The increase in the market capitalization of Indian equities is largely a testament to the long-term growth prospects of the Indian economy supported by healthy fundamentals, continuity and support from the government regarding policy, productive investment and capacity addition in the industry. Although it is difficult to predict the performance of the market in the short term, but given the strong returns given by the stock market in the recent past, especially in the mid and small cap segments, we are seeing the possibility of a slowdown in some sectors which are currently showing consistent growth.
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Large cap attractive for short term
Vinay Paharia says that from a risk reward perspective, large caps look more attractive than mid and small caps for the short term. From here, investors have to be selective as stock prices in general have seen significant growth in the last 1-4 years. At the same time, the actual delivery of growth in earnings, cash flow and return ratios should determine the performance trajectory of the stock on an individual basis.
Increased interest in Indian equity funds?
Interest in Indian equities has been very high among both domestic and foreign investors. With regard to foreign investors, they bought Indian equities worth about US$22 billion in the last calendar year. However, in the first half of the calendar year, they have seen only marginal positive flows into the Indian markets. (Foreign investor flows for the first half of CY 24 were about $0.5 billion). On the other hand, domestic institutional investors have been consistent buyers in almost every time period since calendar year 2020, buoyed by healthy flows into mutual funds. (DII flows for the first half of calendar year 2024 were about $29 billion). Retained individual investor participation has also seen strong growth since calendar year 2020.
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How did the elections impact the performance of stocks and equity funds?
The market forecast was an absolute majority for the current ruling party, i.e. BJP. However, the actual results that came in showed that BJP fell short of the majority figure. BJP has formed the government with the support of its NDA alliance partners. After this result, there was a correction in the markets for a very short period when the election results were being announced. However, after this correction, the markets bounced back sharply. The post-election rally has been much broader than the rally witnessed by a select group of stocks before this.
This may be related to the fact that a government that does not have an absolute majority may have to be a little populist while focusing on investment given coalition compulsions. If this is done within reasonable limits, this may not be a bad thing, as consumption has been slightly subdued in the previous months due to high inflation and interest rates. Nevertheless, the long term outlook for Indian equities appears strong due to high single digit GDP growth, rising per capita income, continuation in policy reforms and investment incentives.
(Disclaimer: Advice or information about the stock market and largecap stocks, midcap or smallcap stocks is given by experts. These are not the personal views of Financial Express. There are risks in the market, so take expert advice before investing.)