![]() Always keep asset allocation and diversification foremost in your mind. “Do not be gung-ho on any one particular sector or theme. Investors should not rush into them without doing the homework about the company’s prospects and valuations. Other stocks in the news such as Reliance Industries have also seen a huge rally. In India, pharma has seen a sharp rally post the covid-19 outbreak, with the Nifty Pharma Index rallying 50% since the start of 2020 (as of 21 August). IT was the ruling sector during the dotcom boom. So what can investors do to avoid making the same mistakes as their forebears made during the dotcom boom?įirst and foremost, avoid sectoral bets. Much of that money has flooded into Indian markets, as FII (foreign institutional investor) flows show. In today’s scenario, US rates have not only been cut to near zero but the Fed has also injected a $3 trillion stimulus (about 13% of the US GDP) into the economy. This was basically the idea that Alan Greenspan, then chairman of the Federal Reserve, would cut interest rates whenever there was volatility and support the markets. In the 1990s, Greenspan Put supported stock markets in the US. The third parallel is one of interest rates. By this measure, large-cap valuations are at historic highs compared to mid- and small-caps," said Shravan Sreenivasula, director, investment advisory division, Avendus Wealth Management Pvt. “Given how unusual this year has been due to the covid-19 crisis, we look at market cap rather than PE (price-to-earnings) ratio to measure concentration. Second, if Indian large-caps are also stretched in terms of valuations, a similar story is being played out here, albeit at a milder level. So watching out for a US bubble is useful for Indian investors. First, a crash in the US market invariably spreads to India. There are three reasons why Indian investors should take note of the giddy valuations in US tech stocks and the concentration in the Indian market. I would not necessarily say it’s only tech this time," said Vikas Gupta, CEO and chief investment strategist, Omniscience Capital. “There are parallels to the 1990s dotcom boom in the sense that some large stocks have unrealistic expectations built into them. When it comes to India, the scenario is a little different. However, the resulting surge of tech stocks may be out of sync with even improved prospects for IT companies. If asked, everyone will remember the world’s largest search engine, but virtually no one will remember or care about the second largest," said Rajeev Thakkar, chief investment officer, PPFAS Mutual Fund. But this is because of the ‘winner-takes-all’ economy. ![]() ![]() “There is polarization in the US and Indian markets. The shift to online working and interaction has created legitimate enthusiasm for the future prospects of tech companies. There is an argument to be made in support of the tech surge. In this piece we ask experts to what extent this is true and what investors should do. To some investors, it may look like the tech bubble is back.
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