RBI annual report has talked about bubble in the stock markets.

RBI’s annual report released recently suggested that the rally in domestic stocks despite an estimated 8% contraction in FY 21 GDP poses the risk of a bubble. RBI said that the widening gap between stretched asset prices relative to prospects for recovery in real economic activity has emerged as a global policy concern. It has also suggested the need to consider a calibrated unwinding of stimulus once the pandemic waves are flattened and the real economy is firmly on a recover path.

One must be careful about it. It is not that everything is in the bubble territory, but as we have been talking relentlessly in our various communications to our customers that there are some pockets like euphorically valued FMCG stocks, some euphorically valued MNC industrials, highly overpriced technology stocks in relation to their growth and many insurance companies that are super euphorically valued. So, one needs to be selective and steer clear of very high unsustainable valuations. Even commodity stocks in the Metals, Cement space are more than fully priced. If there is slight change in policy and if imports are allowed in metals at normal import duty, these stocks could crash. So, be watchful, be vigilant and try to invest in sustainable good businesses available at reasonable valuations.

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