As today marks a start of a new financial year with Sensex touching lifetime high as I am writing this blog, if we look at the past financial year, it has been a year of dichotomy, Large cap indices Sensex went up by 17.3% and nifty went up by 14.9 %, whereas if we look into broader indices of midcap and small cap, they lost 3 and 11 per cent respectively. Due to this dichotomies portfolio of retail investors took a beating.
Barring last one month or so when FII started pouring in the money, markets have been majorly supported by domestic money of mutual funds and insurance. For the first ten months of the last financial year markets were lead by top 5 or 6 shares whereas broad market was sulking under uncertainty of volatile oil prices, weak rupee, increasing global interest rates and state elections.
Elephant in the room is coming Loksabha elections, FIIs have discounted continuity of regime and that’s why they are pouring money since last one month and any change of scenario leading to the unstable government can really lead to pain in short term.
Though earning growth has still been not up to the mark, but dovish tone by FED along with stable oil prices has given some impetus to global liquidity, From hereon markets are not looking cheap at current valuation but continuity in regime can lead to an extension of this bull run. But given election season we need to prepare for extreme short term volatility.