When Edmund Hillary and Tenzing Norgay conquered Mount Everest in 1953, it was a feat attempted by few. Today, Everest is a commercial hub for thrill-seekers. Similarly, India’s stock markets are scaling unprecedented heights, with the Sensex recently breaching the 80,000 mark. The market’s ascent, much like Everest’s, is attracting hordes, but is everyone prepared for the thin air at the top?

Market’s Relentless Climb

This market rally is powered by a cocktail of factors. The post-election jitters proved fleeting, and now, investors are riding a wave of optimism. Hopes around increased capital expenditure are boosting public sector and banking stocks. Passive investment strategies are amplifying the momentum, and even seasoned mutual fund managers seem swept up in the frenzy. Retail investors, ever eager, are joining the party, adding fuel to the fire. The upcoming quarterly earnings season and the full Budget are providing ample reasons for bulls to charge ahead.

Reality Check Ahead

However, this exuberance is not without its detractors. Even the Chief Justice of India has voiced concerns about market frenzy. SEBI, the market regulator, is taking steps to curb excessive options trading and prevent fraud. Analysts at Kotak Institutional Equities caution against market myths, pointing out that strong economic growth doesn’t guarantee equity returns at all valuations. They warn that while the Nifty-50 may be reasonably valued, much of the market is trading at inflated multiples after a significant re-rating in recent years. The comparison between equity and debt returns is also nuanced, and the assumption of perpetual earnings growth is questionable. Past market favourites, like electric utilities and real estate, have faced sharp corrections, a fact investors should recall.

Lessons From Everest

Early business updates from banks for the first quarter are already giving investors pause. As reported by Madhuchanda Dey, deposit growth in banks is lagging expectations, which could constrain credit growth. This could force a re-evaluation of the lofty earnings expectations that are underpinning current valuations. The market’s relentless climb, while exhilarating, warrants caution. The analogy to Mount Everest serves as a stark reminder: “Every corpse on Mount Everest was once a highly motivated person.” Investors must temper their enthusiasm with a healthy dose of realism.

Will the market continue its ascent, or is a correction imminent? Keep a close watch on the upcoming earnings reports. They will be crucial in determining if the market’s peak is sustainable or just a precarious summit.

Image Courtesy: X (BSEIndia)