Ride The Bull, Cautiously

The Sensex reaching the 60,000 level is indeed a silver lining in these dark Covid times. Millions of investors have benefitted from this remarkable rally. However, since valuations have been pushed to elevated levels, it is time for a reality check. Valuations Are Stretched India is the best performing large market, so far in 2021. With the Sensex returning 25.75 per cent year-to-date (around mid-September), India is outperforming the MSCI World Index and the MSCI EM Index, particularly since August. By all parameters valuations are stretched. The Nifty’s one-year forward PE (price-to-earnings) is 23 (long-term average is 16) and market cap-to-GDP ratio is 127 (long-term average is around 78). Price-to-book at 3.9 and dividend yield at 0.9 per cent also indicate elevated valuations. So, it’s time for a reality check and some tweaking of the investment strategy. Since...