The Indian equity markets have experienced a recent pullback following a record-breaking rally. In a recent note, analysts at Kotak Institutional Equities highlighted that investors seem to be overlooking concerns about high valuations. They believe that the pursuit of returns has outweighed the fear of risks, whether apparent or hidden.
According to the brokerage, institutional investors have focused on finding possible risk factors, but they have oddly failed to consider the prospect that the biggest risk could be found in the large gap between current stock prices and their fair values across the market.
“The dread of risks—visible or invisible—has been surpassed by the greed for profits. The brokerage business stated in the research that “the fact that investors have made high returns will mean little in the event that stock prices eventually align with fair values.”
The market is overlooking the significant embedded risks in the current high valuations, even though investors are concerned about potential factors that could disrupt the ongoing rally, it stated
predominant in the Indian stock market is greed According to Kotak, there is a strong sense of greed existing in the market, as seen by the large inflows of retail investors into domestic equities mutual funds and the investments made by mutual funds into the markets.
“As we have argued before, high conviction at all price points among retail investors with limited investment experience due to high returns over the past 3-4 years has led to the high levels of confidence (greed) among investors of all kinds,” the research stated.