Harshad Chetanwala, Co-founder, MyWealthGrowth.com.

Harshad is a Certified Financial PlannerCM with more than 18 years of experience in financial services and in the past has worked with companies like Quantum Asset Management Company, HDFC Securities & HDFC Standard Life Insurance. In the past 18 years of his career, he has worked in multiple roles focusing on Personal Finance, Asset Allocation, Goal-based Investing, Mutual Fund, Equities, Debt and Insurance that help families to achieve their financial goals. He specializes in guiding investors on Financial Planning, Investment in Financial Assets & Gold, Mutual Fund Portfolios and Financial Protection. In his previous stint at Quantum Asset Management Company, he has authored articles and delivered talks at different platforms to empower the audience with knowledge on personal finance and investing. He strongly believes in creating financial awareness that lets families take control of their personal finance.

If you compare the tone of Corporate India at the height of the lockdown during the pandemic and now, there is a clear change of tone for the good. The fear of a massive consumer slowdown that was expected to continue till 2023 at the start of the pandemic has now waned. Yes, there has been a section of the population that has witnessed job/salary cuts. Yes, there is a section of small and medium enterprises (SMEs) that are slowly coming out of the woods, having seen business evaporate overnight with serious working capital issues at hand. Yes, corporate India, in general, has reduced its cost base significantly since March 2020 much ahead of the decline in revenues. But there is a sense of hope ahead.

We came across this combined P&L of about 4,200 non-financial listed companies in India. Clearly, there has been an impact on revenues and profitability, especially due to the ~2 months of lockdown at the start of the fiscal year. But Corporate India was able to cut costs steeply resulting in net profit margin bouncing back fast. Some of these cost cuts are permanent and some (like travel and salary) will revert back to mean.

The background is very important to how one views the performance of the stock market. The chart below shows the PE multiple (Price to Earnings) chart of BSE Sensex. Clearly, the markets seem to suggest the recovery from COVID-19 will be a ‘V’ shaped one with significant upside earnings revisions in earnings forecasts. Our view is that while the economy is bouncing back sharply from the impact of COVID-19, the stock market may have run ahead of fundamentals.

The current PE multiple of Sensex is close to peak one witnessed during the early 1990s (the Harshad Mehta era). Like in a typical bull market, valuations are justified by various reasons. Low interest rates across the world, a global monetary policy effort to ensure liquidity is healthy and passive inflows into mutual funds are all reasons attributed to the run up in stock markets we have witnessed so far as well as the reasons why it is likely to remain this way in the future. But in my view, there are pockets of bubble valuations emerging in certain sectors within the stock market and investors will have to be careful.

If you plan to invest Rs.100 for long term at present, a gradual approach investing across 6 – 9 months will be better. If your financial goals are coming up in next two quarters, it would be a good strategy to sell/redeem 25 – 30% of holding for those goals today and the rest can be done in coming days. Please take the advice of your Financial Planner to work on your investment plan.

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