India’s largest fund house has waved the red flag on the country’s stock market

Balachandran said the internet sentiment index tracked by the mutual fund is also flashing warnings of extreme excitement among retail investors. “Retail investors are getting very excited about the market,” Balachandran said. The Indian equity market has seen a parabolic rise over the past 16 months with the benchmark indices more than doubling from their multi-year lows hit in March 2020. The midcap and smallcap indices have performed even better as both have nearly tripled their value after hitting their five-year lows in the sell-off in March 2020. In 2021 so far, the Nifty Smallcap 100 index has risen more than 40 percent, and the Nifty Midcap 100 index is over 30 percent against around 15 percent rise in the Nifty50. In the meantime, India’s primary market has been on its hottest streak in decades as several new-age startups have hit the IPO mart to raise funds albeit at exorbitantly high valuations. Balachandran, said if the current excitement in the market continues, then the fund will look to lower its equity allocation even further to ensure capital preservation. The fund manager believes that stock market return from here on will have to be driven by growth in corporate earnings. He believes companies linked to the economy would do better going ahead as the economy recovers from the pandemic. The fund manager believes that stock market return from here on will have to be driven by growth in corporate earnings. He believes companies linked to the economy would do better going ahead as the economy recovers from the pandemic. “We believe the industrial space in India is poised for a multi-year bull run,” Balachandran said. The asset manager also highlighted his liking for shares of healthcare companies and non-lending financial services firms.