“Facts don't care about your feelings.”

― Ben Shapiro

The unabated bull run in equity markets since last one year is making people nervous. Situation on the ground feels pretty grim with multiple lockdowns since the advent of Covid. 2nd wave has been devastating for majority of Indians both emotionally as well as financially. Though we seem to be out of 2nd wave now,

“There are decades where nothing happens; and there are weeks where decades happen” 

This quote by Mr. Vladimir Lenin perfectly sums up what we saw in the last 6 months: A once in a century event, health care crisis, unprecedented lockdown, WFH culture, high unemployment, steep market correction followed by questionable recovery and finally hope for a vaccine that will be the panacea of all these ills. We have seen it all. 

2019 has been an year full of surprises. Even though Sensex touched all-time highs, the returns didn’t seem to translate for the investors. Main reason for this anomaly was the fact that very few companies participated in the upward journey of Sensex. Few big stocks like Reliance, Bharti Airtel, HUL etc. gave good and handsome returns. On the other hand, majority of the listed stock universe gave below-average to negative returns.

Despite slowdown in the economy and low GDP growth numbers, Sensex 30 continued to rally in the month of Nov. A deeper look however, tells a different story. The market rally was limited to only a few large stocks like Reliance Industries, HDFC etc. Broader markets did not participate in the rally. As a result most of the mutual funds (which are more broad-based) did not give good returns. This kind of divergence is happening since last 2 years. As a result of this divergence, select large caps look severely over-valued. However, most of the medium and smaller sized companies look under-valued.

Followed by roller coaster rides of Indian equity markets over the last few months,  the Sensex touched its lifetime record high in the previous month. The Indian Markets which hit the record highs in June had a sharp pullback in July after the Union budget announcement of imposing higher surcharges on foreign portfolio investors. But the Sensex gained 11% since September 20th after the announcement of a cut in the corporate tax rate.