Nifty made a low of 7500 levels back in March 2020, when the COVID-19 pandemic hit the country and lockdown was imposed. However, currently, there is great euphoria among equity investors in India as the stock indices are making new highs almost every day like the last bull run.
Nifty recently breached its all-time high levels by breaching the 18400 mark, which was unexpected considering the devastating impact of the second wave. This is 145% higher than the lows that Nifty made in March last year. This is despite the Indian economy not being in very good shape. Many market pundits and stalwart investors like Rakesh Jhunjhunwala are prognosticating the current rally as the start of a bull market that is here to stay. The million-dollar question now becomes that if this is a bull run, till when does the current bull run last?
This question is making rounds in every panel discussion in the country these days as many naysayers or bears are expecting a correction in the stock markets. However, no one can with complete precision as to how long will the current bull run last? This is a question that is grappling with investors since the current valuations of companies are not justified, according to many participants in the market.
After an unexpected bull rally, many are questioning its sustainability. This is more so because we are an economy that was badly hit by the Coronavirus, and we are still struggling to come out of it. Let’s look at some of the factors that go on to show that the current rally is liquidity-driven with no fundamentals and valuations backing it.
Unemployment levels are at an all-time high, just like the market indices. According to the CMIE (Centre for Monitoring Indian Economy), the unemployment rate touched 8.3% in August this year. It was more than 10% in the third quarter of the previous fiscal year. This clearly does not justify the current bull run.
GDP Growth Rate:
We have seen a GDP growth rate at a negative 23.9% in the first quarter of this fiscal year (FY22). This is a key macroeconomic indicator for any developing country, and in India’s case, it is recovering slowly. The difference from the last bull run is that the GDP growth rate was not negative back then.
Inflation (both CPI and WPI) are making highs, fuel prices, cooking oil prices are breaking all the previous records. High inflation with a slow GDP growth rate and high unemployment is what is called Stagflation in macroeconomics. The jury is still out regarding stagflation or not. In such a scenario, it is fair to ask when the current bull runs last?
Indirect tax (GST) collections are not highly consistent in line with the target of the Finance Ministry. There has been a fall in collections in most of the months in 2020. The central government had a tough time compensating the states for their tax revenue shortfall.
As a result of this pandemic, myriad Indians have lost their jobs, we have seen reverse migration of labourers from metro cities to their villages. This created a labour shortage in many states, especially in the manufacturing, and real estate sectors. At one end, we are witnessing a bull run that is better than the last bull run, and on the other end, the situation on the ground is completely different.
A combination of all these factors makes it hard to believe the sustainability of this stock market rally in India.
Morgan Stanley’s Research
Analysts at Morgan Stanley had hinted towards this bull market being mediocre, not as rewarding as other historical bull markets, and not as dull as the last bull run. This team has analyzed the previous five bull market rallies in the Indian stock market and compared the current rally with those five rallies on several parameters. Their criteria of a bull market are when Nifty50 or Sensex doubles from its recent significant low. One highlight from this report is that the current bull market rally has given returns of 1.7% on an average every week. This is lower in comparison to weekly average returns of 2.8% in those last five bull markets.
What does the Big Bull take on this rally?
Rakesh Jhunjhunwala, the “Big Bull” or “Warren Buffet” of the Indian stock markets, is of the opinion that the current valuations are justified, and we are at the start of a decade long bull market. According to him, the current bull run last is nowhere near, and it’s just the start. He thinks the GDP growth rate in the coming years will be somewhere between 7-10%, and humongous opportunities are awaiting. He is highly bullish on banking and insurance sector companies going forward, which got a new life in this pandemic.
People believe that this rally will continue, and there is no stopping it. No one can accurately time or predict the markets as the market is above everyone. Let’s see which side will have the last laugh in the coming calendar year.
However, even if a correction comes, quality blue-chip companies will not see a massive drop in their share prices. Thus, if you are in a stock market with a long-term horizon, then continue investing every month, irrespective of where the indices move. This is because, in the long run, the market will go up only, and you will create your wealth in this manner. Don’t think about how long the current bull run will last, just choose quality stocks and stay invested. To start your investment journey, open a Demat account with Angel One, to enjoy one of the lowest brokerage fees. Click here to know more. Happy Investing!!