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Indian stocks overvalued? Squirreling away a portion of one’s income for a rainy day would typically be considered prudent behavior. Yet, in India, it’s helping make stocks overvalued.
Systematic Investment Plans (SIPs) were introduced to help investors periodically put aside money in a disciplined manner. SIPs deduct cash every month from an investor’s bank account and invest the proceeds into selected mutual funds. As more money is directed toward these funds monthly, the portfolio managers are forced to buy stocks even when their valuations might not be as attractive.
For instance, of the nearly 4,900 actively traded India-listed stocks, 300 stocks had a fall in revenue in the last two consecutive financial years. Yet, 216 of these stocks rose over the past 12 months. In fact, small-cap companies such as food packaging carton manufacturer Rollatainers and Tantia Constructions, an infrastructure company, have had three years of falling growth. Yet, their stock has risen more than 300% over the past 12 months. -
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