There is a boom in the stock market right now. Broadly speaking, the market has been an outperformer in recent times. With the performance of the month of August so far, the BSE Midcap Index (S&P BSE Midcap Index) has increased by 2.54 percent, while the Small Cap Index has increased by 6.30 percent. Looking at the year to date basis (YTD basis), the midcap has so far given returns of 29.4 and 48.6 per cent respectively.
Economic recovery started but business loan demand still low
Economic activity started showing improvement in June (unlocking started in the first week of June) and with the start of COVID onlocking in July. But most of the indicators were down as compared to March 2021. But the chances of recovery in the mid-term have increased. Keeping this in mind, companies have started rebuilding their channel inventory for the festival season. Sorav Gupta, Equity Fund Manager, Quantum Mutual Fund says the macroeconomic indicators of the economy are starting to look good but still the pace of growth in credit demand, especially business loans, is tepid. In comparison to the July month of the financial year 2020-21, the business loan has increased by only 1 percent in the July month of the financial year 2021-22 in comparison to the financial year.
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Mid cap valuation is high, invest wisely
In the context of these circumstances, there is a possibility of uncertainties related to COVID-19. While the midcap valuation has almost reached an all-time high. It is clear that the market is ignoring the risk of investing in small companies. Investors are investing heavily in mid cap and small cap. This is the reason why their valuation has increased. But if the third wave of COVID-19 comes, then the global liquidity coming into the Indian market will dry up. Keeping this situation in mind, we have to invest wisely in midcap and small cap. Retail investors should invest all their investments in shares of companies of different sizes. They will have to invest in equities for the long term as compared to their immediate gains. Perhaps FPIs have sensed this apprehension, so in July they sold Indian shares worth $ 1.5 billion.