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Investing tips: Is now a good time to enter markets?

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In recent times, we have seen that many startups have started listing on IPOs and that has caught the imagination of many youngsters and millennials. Data showed that the number of people trying their hand in stocks has increased to a record high so far in FY2021.

Investing tips: Is now a good time to enter markets?
The stock market is always buzzing with movement in the share prices. In recent times, we have seen that many startups have started listing on IPOs and that has caught the imagination of many youngsters and millennials. Data showed that the number of people trying their hand in stocks has increased to a record high so far in FY2021.
According to Securities and Exchange Board of India (Sebi) data, new dematerialised or demat account additions rose to an all-time high of 10.7 million between April 2020 and January 2021. There is an increase of more than double the new accounts opened in FY20 at 4.7 million. Not only has there been a surge in first-time users, but data trends have also shown that in the post-pandemic world, younger or millennial investors in India have started opening demat accounts to start trading, in sync with the global trend.
These trends are testimony that youngsters are curious about the stock markets but imagine a person who has invested Rs 1 lakh into Sensex only to find out that the portfolio after 40 days is worth a shocking Rs 62,000. Indian markets witnessed the same emotion but have also able to bounce back like never. For example, Sensex and Nifty witnessed the biggest ever one-day fall due to COVID-19 and these indexes have never been this low since 2016. It was frightening to see markets go down so steeply, however Indian markets soon took a rebound.
But why are the markets rising?
Here are some of the drivers that I can think of:
  • First is the market sentiment and basic human behavior. Investors would never want to miss out on the great opportunity to buy a good chunk of equity when prices are at a bargain.
  • Positive news about vaccine progress lifted the spirits of the market. It was anticipated that vaccines would be available at the start of 2021, and it turned out to be true.
  • One of the major reasons behind the rally was Indian Foreign Portfolio Investments that reached an all-time high of USD 21.7 billion in December 2020. Representing India as a great investment opportunity globally.
  • People are optimistic, it’s evident. But does that justify this period as the “right period” to enter the markets?
    I believe “right time” would have a different meaning for different kinds of investors. You need to think about what your financial goals are, before deciding to invest. There can be various reasons behind investing but understanding the what the financial goals are, is an important first step as it helps you assess the returns that you want to target.
    In the present market scenario, this is not the best time for short-term investors who want to put money in and get out in a few months. They should look for other options because equity is not for them.
    However, it is undoubtedly the appropriate time for medium to long-term investors who can stay involved for at least four to seven years. You can create a SIP and begin investing every month. If you just look at the markets and valuations, you will see that we’re obviously historically overvalued right if we go by the Nifty PE ratios.
    In 2008, the Nifty PE was around 28.29, (which was supposed to be the highest ever) and during COVID-19’s crash, this number went above that number and was at around 42. Currently, nifty PE stands at around 26, now if the market falls a little more from here, the market will become averagely valued. This means that earnings have caught up and PE values are now reasonable. Although this doesn’t mean that markets won’t fall, it means that there may still be some steam in the markets left.
    Market crashes can be potentially dangerous as you might end up buying stocks that fail to recover from the crash. Hence, ensure that you analyze the fundamentals of a stock/company carefully. Importantly, one needs to your investor profile before you start investing. This will provide clarity and help create an investment strategy that works for you. To be able to do that, it is necessary to invest in financial education so you can understand and learn how to understand the markets and stocks and choose the right ones before you start investing. In a nutshell, to quote Warren Buffet, “Investing is about TIME in the market and not TIMING the market.”
    The author, Prateek Singh, is Founder and CEO at LearnApp.com. The views expressed are personal
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