From last 2 months, there was a disconnect between the Sensex returns and portfolio returns. Good gain by Sensex and Nifty for 2021, yet many investors’ portfolios did not see a similar kind of buoyancy. The main reason is that mid and small caps counters came under heavy profit booking. The advance-decline ratio was less than one, suggesting that despite Sensex surged by 17 per cent, more companies declined than advanced. Profit booking in last week of Oct 21 drag index back to 17671 level.
The market has been moving up many months in a row. No markets in the world can maintain or sustain this kind of pace for the longer term. Since March 2020, when market sentiments were hit by the corona crises only two times, India’s market cap was lower than the previous market cap suggesting that the rally has been one-sided. India’s market cap was Rs 125 lac crore in April 2020 ( Jan 2020 Rs 155 lac crore ) and now surged to Rs 250 lac crore. It got doubled in the last 17 months! Hence Indian market needs corrections. We saw healthy intermittent correction in the market when Sensex surged from 2000 to 20000 levels from 2003 to 2008. In the same way, we need healthy correction if this market wants to continue its upward journey for a longer period.
Result season
September result season are ongoing will update once get full results. One common feature of the result season was that companies could not pass on higher input costs to end consumers, taking a beating on their margins. But each company is optimistic about growth for the balance two quartersn provided the third wave of the virus does not disrupt economic activities again.
Inflation
Inflation remains a concern Inflation is undoubtedly a worry for most corporates from the automobile to the consumer sector. “Inflationary trend has been really unprecedented this year. We have never seen, I think, in the last three to four decades, inflation, which is so strong, which is there, and overall inflation is closer to about 18% to 20% levels when we see from a perspective of Q3 of last year to that extent”, said management of Asian Paints. However, while inflation will adversely impact margins in the short term, it accelerates our thesis of big getting bigger as reflected in Havelles’ Managing Director’s comment. “In fact, in an inflationary enviornment, the relative gap between unorganized and organized sector reduces. The other thing is, we’ve also seen, though, we’ve been able to manage it well, there has been supply chain disruptions and for the organized sector, it is easier to manage as compared to the unorganized sector.
What should we expect in November?
Now, that brings to the very interesting question on what one should do in November. The market normally corrects whenever the main index goes up, but the advance-decline ratio is less than one. One can expect some selling pressure in the month of November to continue. Is the correction good or bad? I would say that correction is extremely good. The correction is healthy for the market to take the next big up move. So don’t panic when correction happen. Use that as an opportunity to add more. The Indian Market is poised for a mega bull run for the next few years, with many healthy corrections in between.