Nothing Like We Expected!

The year that ended was nothing like we expected. It was a year that began on a note of fear and ended on a high of Greed. The year made equity investing look too easy and money flowed into equity from every other asset class. As we put 2023-24 behind and enter a new year, the market mood is exactly the opposite of what it was a year ago.

The desire to participate in equity is at a historic high. The resistance to practise asset allocation has diminished like never before. Everybody wants to get a bigger bite into equity. Their anxiety to take higher risks is driving them into almost every part of the market. The deal street is seeking a flood of issues of all sorts – IPO’s, block deals, QIP, private placements, Pre IPO deals, SME IPO’s and Promoter selling OFS deals. Everybody with bigger shareholdings are selling aggressively at higher valuations. But, the domestic retail investor appetite is simply unabated.

The market construct for a financial year can change drastically from its beginning to its end. The last financial year was a classic year where we saw the starkly contrasting constructs between the start and end. 2024-25 begins on a hugely positive note.

Investors want corrections so that they can buy more equity. Every dip looks like it will be swiftly bought. The political scenario seems stable as never before. The market consensus seems to be factoring in a stable government at the centre. This would by extension mean the market is assuming accelerated reforms, returning to fiscal prudence as per plan, revival in private CAPEX post-elections, and improving macros. The prevailing valuations suggest the market sees no major impediments to a recovery in economic growth and expects stable valuations and sustained flows into equities.

Effectively, the market is willing to factor in most positives and is not seeing any negatives in the near term. There is hardly much mispricing in equity valuations making it next to impossible to get quality opportunities to play a contrarian.

Investors are still pushing into mediocre ideas just to bet on whatever contrarian opportunities they can lay their hands on. Capital is chasing equity opportunities like never before. This market is seeing the highest retail participation ever. Investors who approached 2023-24 with caution are not as cautious now. In fact, there is a visible slack in cautious stances maintained by retail investors. Politics seems to matter the least just 3 weeks before a general election polling begins. Will the market again be nothing like we expect it to be?

From the way things look at the beginning of a financial year, it is probably going to be another year very different from the previous one and nothing like what we expect it to be.

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