Indian Stock Market: Valuations since 2020

Since the start of 2020, the world is struggling to fight the deadly Corona Virus Pandemic. Obviously the tremors were felt in the worldwide equity markets too in the initial phase.

Come to present. We are in the second half of 2021, many countries have imposed lockdowns for the fears of 3rd/4th wave, vaccinations are struggling to cope up the required pace. But where is the market? 

Well, Nifty-50 has scaled the mountain of 16600 -An all time high in August 2021 from the lows of 7500 levels in March 2020! This is quite astonishing even for the veteran traders or investors let alone layman.

Let's try to explore this. Almost every major central bank in the world including Federal Reserve declared humongous stimulus packages to tackle this health crisis and support the economies. The latest one signed by USA was of  $1.9 Billion! To add onto this, consistently the bond interest rates were kept low by all major economies. In effect , corporates had large amounts of funds obtained with almost zero interest. Result: Trillions of dollars poured into equity markets and especially the emerging markets like India where valuations were quite attractive after the crash. 

In the Indian context, there was one more dominating factor to keep markets pumped up. The increased inflow of  Mutual Funds through SIP route. Also, there have been more than 3 crore Demat accounts opened since 2020. That simply shows retail interest increasing in the equity markets and the sheer returns it generated in the entire bull phase.

All in all, these all are good signs for a retail investor in India, as foreign institutional dependency has slowly started to reduce. That being said, we need to be very cautious considering overvaluation in the market compared to the corporate earnings.