A Wild Ride Through Marketing Madness
What a rollercoaster ride this has been! When looking into my portfolio, What do I see? Everything is up, up, and up! It’s as if my portfolio has been touched by Midas himself. Yesterday, I spent half the day just staring at it in awe, like a proud parent gazing at their prodigy. Seriously, if my portfolio were a person, I’d be putting a black dot on it to ward off evil eyes.
And I bet this isn’t just happening to me. The data backs it up:
Nifty is up 25% over the past year, gold has soared by 39.8%, silver by 24.8%, and Bitcoin - hold your breath - a whopping 171%! Bonds are hitting all-time highs.
Wherever you go, parties are now portfolio show-offs. Ever noticed that? This isn’t the norm. I’ve never seen a time when everything — Nifty, gold, silver, Bitcoin, bonds — goes up simultaneously for this long (even tried to google through the past). It’s like all market logic has been thrown out the window. Some people are saying the markets are overvalued and a crash is imminent. Should we book profits now? Sell our mutual funds, stocks, and gold?
So let’s dive into some interesting data.
The Nifty Small Cap’s PE is at 29.8 times, which is overpriced. The Nifty Midcap’s PE is even higher at 41.6 times. Nifty IT is also on the expensive side at 29.3 times. However, the Bank Nifty is at a reasonable 15.2 times and could even be considered undervalued. Nifty 50 stands at 22.3 times, which isn’t too shabby.
What does this mean? Simply put, the current prices are based on optimistic future earnings. Investors are betting big on small caps, anticipating that their prices will skyrocket even further.
If we look at the Warren Buffett Indicator - Market Capitalization to GDP ratio, it’s at 1.33 for India. Historically, this indicates that the market is overvalued. To give you some perspective, during the 2008 crash, this indicator was at 1.46. So yes, we’re high, but not disastrously so. Comparing globally, India isn’t faring too badly. The US is at a ridiculous 1.8, Japan at 1.7, and China and Hong Kong have more reasonable indicators at 0.6. This is why foreign investors are pulling out of India and investing more in China and Hong Kong.
And then there comes the IPO craze. Everyone’s trying to get a piece of the next big IPO, inflating demand with fake bids, as noted by SEBI. It’s become so rampant that even though only one bid per PAN card is allowed, people are still flooding the market with applications to create artificial hype.
The speculative frenzy doesn’t end here. Futures and options trading has exploded. In 2023, India saw 85 billion options contracts traded — the highest in the world. About 35% of this is from retail investors. This surge in trading activity is concerning because, according to a SEBI report, 90% of futures and options traders are loss-making. Even among the profitable 10%, not many can beat fixed deposit returns consistently in the long run.
Despite these losses, people continue to pump money into the markets, convinced they’re gonna make quick money. And many are actually trading without following any solid trading principles. It’s not surprising that most people can’t sustain their gains in the long run.
Remember Warren Buffett’s famous advice:
“Be fearful when others are greedy and greedy when others are fearful.”
Right now, everyone seems incredibly greedy, throwing money into the market with little regard for the underlying risks. And, It’s fascinating to see individual investors and domestic mutual funds holding 18.4% of the market, surpassing the 17.9% held by FIIs. This shows how much Indian retail investors are getting involved. But remember, investing isn’t just about riding the current wave of optimism. It’s about being prepared for when the tide turns. Keep your portfolios happy, stay informed, and remember, a wise investor is a happy investor!