Do you think the bull market is peaking out or would you say this is just going to be a temporary lull in an otherwise roaring bull market?
As far as returns in bull markets are concerned, the obscene returns that you have made in smallcaps in 17-18 months in India, is pretty much crippled. Of course, the tangent will be different now there will be relatively lowish return– nominal returns — in the inflationary backdrop. It will continue to be okay but not great. . I would be surprised if it is the end of the bull market because that would mean it would be like the 2009-2010 business cycle which ended within one and a half-two years.
My bet is in India the bull market would be longish and the midcycle phase would persist for one-two years at least, if not more. There will be lowish but reasonable returns in Nifty. We will have volatile returns in small and midcaps but one never knows if policy makers begin to surprise you by tightening rates because they start fearing inflation. We should prepare ourselves for the end of the bull market as well but at this stage I am not calling it out.
There is a reasonable space in the world economy and Indian economy to grow and that means that there will be undercurrents of more gains in asset prices.
I must say that you are the first of the lot to actually say that on record but point taken. I get where the fears are emerging from. If one goes underweight equities, where can one invest? Fixed income is not giving returns, gold has not had the best of the ride as it did in 2020. So where do you park your money? You cannot be sitting on cash?
Fixed income is not a place to go to, especially duration assets, if you are fearing inflation. But remember equity is the longest duration product. The long bonds of course are duration and so one ought to hide in short duration like three months, six months, one year assets but there the real returns are actually negative. Something cannot scale up in a significant manner but it could mean a lot if you buy farm land because that gives the best protection against inflation.
Gold and silver have independent cycles but there could be some steam there. One cannot have significant exposure to gold and silver as a percentage of a portfolio. So broadly speaking, one still has to be in at least equal weight risk assets but you one has to diversify, it could be real estate, more specifically farm land. Some of it could go to gold and silver and then one has to sit on equity mutual funds or equity oriented exposures but just be aware that if it is an end of cycle. you ought to be careful and quickly trim the exposure even on the largecap Nifty at some point time.