Investors expecting a repeat of the 2014 performance in the stock markets are at their wits' end nowadays. While the major indices are booming, many of the stocks are languishing. The 52 week high - low ratio is only about 5 to 10 %, implying that a majority of the stocks are near their 52 week lows. This is in sharp contrast to 2014 - 15 when the midcaps and smallcaps were leading the charge. While the financial media is
filled with stories of booming markets (meaning Sensex and Nifty), the reality many investors are experiencing is a far cry from the 2014 heydays.
There may be several reasons for the same:
1. After a breathtaking rally, smallcaps and midcaps are pausing for breath.
2. Growing popularity of Index Funds.
Investors are coming to see Index funds as a relatively low-risk option to enter the market. This trend already established in the US will only continue to grow because of the several advantages of an index fund. Namely, the opportunity to have exposure to the broader market with minimal company-specific risks, low fees and comparably decent returns. As can be seen, the Sensex has been the best performing index over longer periods of time including the 2008 crisis.
3. Risk-averse Investors.
After the IL&FS crisis, investors have turned risk-averse shunning companies loaded with debt such as Zee, DHFL, Jet etc. Although this may also be a time to pick up companies with strong fundamentals whose industry is passing through a bust such as the auto sector.
Investors need to evaluate their holdings and sectors independently and not get drowned in the market noise. Also, investors long used to treating the major indices such as Sensex and Nifty as representative of the broader market may want to re-examine their assumptions.
1. After a breathtaking rally, smallcaps and midcaps are pausing for breath.
2. Growing popularity of Index Funds.
Investors are coming to see Index funds as a relatively low-risk option to enter the market. This trend already established in the US will only continue to grow because of the several advantages of an index fund. Namely, the opportunity to have exposure to the broader market with minimal company-specific risks, low fees and comparably decent returns. As can be seen, the Sensex has been the best performing index over longer periods of time including the 2008 crisis.
3. Risk-averse Investors.
After the IL&FS crisis, investors have turned risk-averse shunning companies loaded with debt such as Zee, DHFL, Jet etc. Although this may also be a time to pick up companies with strong fundamentals whose industry is passing through a bust such as the auto sector.
Investors need to evaluate their holdings and sectors independently and not get drowned in the market noise. Also, investors long used to treating the major indices such as Sensex and Nifty as representative of the broader market may want to re-examine their assumptions.
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