When will the Market See a Big Fall?

This is the question most equity investors have been asking. Unfortunately, no one is able to get a concrete answer for this question. The current rally is largely driven by the pouring liquidity which cannot continue forever.

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So, it is quite easy to sell a large part of equities and sit on cash. But certain major structural changes happening in the markets and also in the global economy do not allow us to suggest just sell and go away.

Domestic investor base is growing at the fastest rate in the history – investors registered on BSE has grown by 46% year-on-year (yoy) and about 2.5 crore investors were added in the last one year alone. This incremental investors added in the last one year alone was equal to the overall investor base of the country till a few years ago. In the month of August, almost every working day, one lakh new equity investors got registered on the BSE! This unprecedented growth of new equity investors seems to have some more appetite left to chase the equities in India in the short-term.

There are some positive developments on the economic front in the short-term as well:

• Vaccination drive is accelerating and both social and economic activities could become near normal soon in India;

• Both export and import growth rates are impressive and better than what it was during the pre-covid pandemic period (2019). Forex reserves rise to over $633 billion – recent allocation of SDRs by the IMF also gives some boost. Rupee might get further significant boost and the same could lead to more inflows of foreign capital and also discourage any major selling by the FIIs;

• Decent GST collections and auto sales volume despite semiconductor issues, and robust growth in power consumption, and fuel consumption indicate a sustained economic recovery on your comparison.

• Rupee gains almost 2% in August 2021 and has emerged as the second-best emerging market currency as FPIs invest $1.1 billion in equities and $1.85 billion in debt;