The ability of the Indian equity market to break through the price barrier and continue to set new highs has definitely been in the spotlight. The second wave, the China crisis, and even the US Federal Reserve’s tapering of the bond-buying programme could not dissuade Dalal Street.
Increased inflation, shrinking companies’ margins, and a slow vaccination rate were also initially unable to prevent an 18-mth-long bull market.
The breaking down of the Indian stock market has raised concerns about the market’s values being too high to be healthy. The 1-yr and 2-yr forward PE multiples of the Nifty50 are the highest among emerging market economies.
The rapidly declining equity risk premia for India reflects the growing optimism for the Indian stock market. According to the RBI data, India’s equity risk premia fell to 3.2% in September 2020 from 6.3% in Mar 2020.
The central bank also used the term “exuberance” to describe activities in the IPO market. So far, in 2021-2022, 22 IPOs have been registered, raising Rs. 46,316 cr, as compared to Rs. 1,798 cr during the same period last year.
Analysts believe that the market will need a healthy correction in the near future to eliminate the weakness that is accumulating in various areas.