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Time for caution

Higher valuations will not support a sustained rally

Topics
stock markets | Indian equities | Foreign Portfolio Investors

Business Standard Editorial Comment  |  Mumbai 



have seen a correction over the past one month, which has, so far, pulled the benchmark Nifty down 5.7 per cent from its record peak. This follows up on a remarkable rally, which pushed the markets up by 130 per cent from a panic low in late March 2020 during the first lockdown. In addition, there has been frenetic activity in the primary market with a multitude of issues getting over-subscribed and listing at a premium. The rally was backed by easy money conditions, with most central banks including the Reserve Bank of India (RBI) maintaining a combination of high liquidity and low interest rates. It was also marked by a sharp improvement in corporate profitability starting from the second half of 2020-21. This is due to low base effects, low interest rates, and tax cuts, despite weak consumption demand. The recent correction, however, carries signs that it could be the harbinger of a deeper trend reversal. (FPIs) have been heavy and consistent buyers through the last fiscal year, with most of their advisories signalling “overweight” on . They bought over Rs 2.75 trillion worth of equities in the last fiscal year.

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First Published: Thu, November 25 2021. 23:01 IST

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