Stock market on a high

Record closing of Sensex (52,232 points) & Nifty today despite a RBI warning of bubble in their annual report is surprising.  It is astonishing to see the market participants are taking a bullish view despite high valuations and drop in industrial activities due to Covid.  Maybe the market is factoring in the future - demand pick up after covid.  Which may also be a factor.  The good news due to market boom is that corporates will have more money in their pockets to spend on investments, improve their capacities, invest in R&D.  There are slew of new IPOs planned for next 6 months to 1 year notably among them are Zomato (around Rs.8,250 crores), Paytm (around Rs.22,000 crores), Lava (around Rs.1,400 crores), Delhivery (around Rs.5,000 crores), Bajaj Energy (around Rs.5,450 crores).  Success of these IPOs also rest on a booming stock market which will help build confidence of investors especially retail investors.  More paradox of this stock market rally is that in parallel commodity prices are also increasing especially gold which is at 5 month highs & oil which is almost at 2 year highs.  There seems to be a buoyancy in the system which is difficult to mystify.  

To me this buoyancy of the stock market is propelled by three main reasons.  Firstly interest of retail investors who find stock market returns attractive and tax efficient compared to traditional investment avenues.   Secondly there is a good inflow of FPI money into the markets  which moves the market upwards.  Thirdly pension funds are coming of age in India and there is significant flow of funds into pension funds (Asset under management of NPS crossed Rs.6 lakh crores) and moving up very fast.   

Of the above three reasons first two are a bit fragile and can stop anytime and there can be severe backlash also  This is where the RBI bubble caution comes into play.  

My piece of advise, retail investors do not follow the herd be sensible in investing go for a mix of equity and debt and do not leverage too much on equity as the same is over valued and already at high levels.