Deepak Shenoy, founder and CEO of Capitalmind, said in a post that many stocks are extremely overvalued. He said that those with decades of experience in investing know that stocks will remain overvalued and have the potential to get even more overvalued.
“This is not the best market to keep nagging about valuations. Nearly everyone who’s been in the industry for more than five years knows that many stocks are grossly overvalued. But those with decades of experience know that stocks can remain overvalued and may even get overvalued. It’s time to realize you’re riding a tiger. If you’re 10% in cash, you’re not sitting on cash; you’re 90% invested. And even if you’re invested in ‘large cap’ or ‘defensive’ stocks, you’re going to get crashed if you do. In fact, the ‘offensive’ stocks – everything other than the ones you own – may rise another 50% before falling, eventually hitting a higher bottom than where you ultimately landed.”
Shenoy urged investors to be “aware” of the risks and expect a downturn if they materialise.
“It’s time for you all to realise you are riding a tiger. If you are holding 10% in cash, you are not holding cash – you are 90% invested. And even if you are invested in ‘large cap’ or ‘defensive’ stocks, you will be in for a nasty crash. In fact, ‘offensive stocks’ – everything other than what you own – may rise another 50% before falling and ultimately bottom out at a higher level than what you ended up at,” Shenoy pointed out.
“A crazy market,” says Shenoy
Shenoy said stock price movements are “totally unpredictable.” He called it a “crazy market” and said market conditions will remain crazy until it’s over.
Be cautious
Shenoy noted that investors should be aware of the situation and the risks and enjoy it while it lasts.
“Right now, there is zero ability to predict how stock prices will move. It’s a crazy market and it will remain a crazy market until it’s no longer. The key is not to keep warning people that it’s too overheated. I’ve been hearing this since December of last year and it’s up more than 30% since then. It may go down tomorrow or it may go down in 10 months. A better way to warn people is to stay agile and stop getting attached to your stocks. When the market falls, even the ones that give you the most smiles today may force you to say a tough goodbye,” he pointed out.
“But until then, embrace all the amazing upswings that you can’t explain. You don’t have to explain every good thing that happens to you, and maybe you don’t deserve it, but you get it anyway. Happiness doesn’t need a right, you just need the ability to sit back and enjoy it while it lasts,” Shenoy added.
Overvalued stocks
Earlier this week, Kotak Institutional Equities recently released a report identifying companies in the market whose market capitalisations are inflated despite the lack of profit-generating opportunities.
The report highlighted clear disconnects between the stories and the numbers, with the market capitalizations of some stocks not lining up with the best profit forecasts.
Kotak cited BHEL as a classic example of market capitalization inflation. Last year, a surge in BHEL shares increased its market capitalization by Rs 77,800 crore. This increase significantly outweighs the thermal BTG industry’s profit pool, which would be Rs 32,000-64,000 crore, assuming India achieves its FY2032 target of adding 80GW of new thermal power capacity. If valued on a net present value (NPV) basis or taking into account lower profit margins, this figure falls further.
BHEL’s current market capitalisation suggests that the company will need to consistently fulfil orders for 25 GW of thermal capacity every year, which is an unrealistic expectation, the report said.
Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are advised to consult a qualified financial advisor before taking any investment decisions.
