Ways To Identify Market Peaks

With the Indian equity markets hitting all-time highs and outperforming the global peers, investors and traders are concerned about whether the markets are peaking. Yogesh Supekar explains the multiple factors influencing the market moods while Karan Bhojwani highlights the several indicators one should use to identify the peaking curve of the market

- Karan Bhojwani

The Indian equity market is proving to be a shining star on the global stage with the BSE Sensex and Nifty 50 continuing to hit record highs in 2021. So far in 2021, the Indian frontline indices are turning out to be world-beating indices with Nifty 50 up by more than 25 per cent and BSE Sensex trading higher by more than 23 per cent. Amongst the major emerging markets, Vietnam is the only country beating the Indian benchmark indices, soaring by more than 35 per cent. The outperformance is there for everyone to see; however, what is not clear to a majority of investors is whether this outperformance will continue in 2021 and beyond.

While no one argues about the strong structural story in India at play which promises to create wealth for entrepreneurs and companies that can get their act together, the practical question that every investor today is asking is: Haven’t the markets run up a lot and aren’t they trading way ahead of the fundamentals? Going by the textbook definition and every theory in finance that talks about valuations and extremes in the equity markets, in all probability the Indian equity markets are very close to being in an extreme situation where we can say that the markets are a little more than overvalued and could be close to a bubble-like situation.