You may want to book your profits if you are planning to fund your short-term investment goals, with key brokerage houses cautioning against the Indian market.
The key benchmark indices Sensex index is hovering above 60,000 points, while the Nifty index is above 18,000 points for some time now. Several investors have seen their money grow over the year 2021 as the market indices have risen sharply. For instance, the Sensex index, which touched an all-time high of 50,000 points earlier this year crossed the 60,000 mark in September, giving a huge boost to equity investments.
With the markets at such high levels, should you stay invested or book your profits and exit? With some major brokerage houses coming up with reports that take a cautious stance on Indian equities, perhaps it may be a good time to exit if you were saving and investing for short-term goals. Long-term investors, however, may look at their financial goals and overall asset allocation before making any decision.
Talking to Outlook Money last month, Pranav Haldea, managing director at PRIME Database Group, said, “Young investors must book profits. Profits on paper and profits in the bank account are two different things. There should also be clarity on returns expectations and what their short- and long-term goals about the use of the money are. Excessive greed can easily land you in trouble,” says Haldea.
Read the full story on the growing interest of young investors in the stock markets and the risks they should watch out for here.
Here is what some major brokerage houses, including Goldman Sachs and CLSA, had to say about India equities in the past few weeks.
In their latest report, Goldman Sachs downgraded the Indian equities by one notch to ‘market notch’. Due to ultra-easy monetary policy, rising vaccinations and the economic reopening, Indian stocks have recovered nearly 28 per cent in 2021, as compared with a 0.76 per cent drop in the MSCI Emerging Market index. "After gaining nearly 31 per cent YTD and 44 per cent since our upgrade in November last year, and being the best-performing regional market in 2021, we believe the risk-reward for Indian equities is less favorable at current levels,” said the report.
At the same time, CLSA also mentioned in their report that there is a growing concern over Indian equity due to issues like elevated energy and broader input price pressures applying downward pressure to margins, the current account balance and thus currency outlook, the withdrawal of RBI stimulus, and a lack of upside implied by Indian equities’ typical macro drivers.
Last month, Morgan Stanley had downgraded Indian equities because of expensive valuations, and predicted that the market may consolidate ahead of potential "short-term headwinds". However, the brokerage also mentioned in one of its reports that supportive government policy and a robust global growth outlook may help India's earnings to compound at over 20 per cent each year for the upcoming three to four years.
In the same month, Nomura also downgraded Indian equities and marked them ‘neutral’ that were overweight previously, claiming that there could be unfavourable risk-reward. It recommended its clients reallocate its funds to China and other ASEAN countries.
UBS, too, cited a valuation gap between Indian equities with other ASEAN markets and called India to be “extremely expensive”.