Stock market investors have reasons to celebrate this Diwali with much vigor and enthusiasm. In the Vikram Samvat 2077 that began from 16 November 2020, the Sensex has till 19 October given a mind boggling 42.64% return!

You also can join the party on 4 November if you have missed the bus before and soak your hands in stock dabbling on the auspicious moment of Muhurat Trading.

However, pay attention to a note of caution. Since the Sensex scaled its lifetime peak of 62245.43 points on 19 October 2021, the index has climbed down more than 1000 points and is finding it increasingly difficult to hold its head above the 61000 mark.

In 2020-21, the share of corporate profits as a percentage of domestic GDP hit a 10-year high of 2.69%, steeply up from a record low of 1.6% in 2019-20. While a 7.3% GDP contraction shows the share of corporate profits at an elevated level, the combined net profit of listed corporate entities shot up by nearly 58% in 2020-21.

This was primarily due to very low commodity and energy prices, low interest rate regime, and a reduction in operating expenditure owing to lower travel and wage cost.

But the scenario has changed from the beginning of the current calendar year. Commodity and energy prices in the international market shot up as countries around the world began to claw back from the depth of the pandemic onto their economic growth path. This will surely eat into profit margins of corporate entities sooner rather than later.

The fear of inflation is looming large globally. Coupled with it is the fear of policy normalisation. Hence, an end to the days of easy money soon is pushing up yields in the government securities market from the US to India.

In short, Samvat 2078 may not begin as enthusiastically as last year.

With the fear that inflation is here to stay elevated for some more time (rather than being transitory), investors will very soon turn to gold for safe haven investment.

Experts believe this may send gold prices to $3000 a troy ounce (one troy ounce = 31.1035 gm) from its current level of $1800 at present.

The rupee has become cheaper against the US dollar and has again crossed the Rs 75-a-dollar mark, indicating that foreign institutional investors have started pulling out. Till Monday (25 October), FIIs were net sellers to the extent of Rs 12329 crore!

Then the IPO market is flushed with big ticket issues such as Paytm etc. This may propel a selloff in the secondary market.

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- Porichoy Gupta