Samvat 2078: What to avoid in market? Overvaluation, fashion,

It has been a great last year, Happy Diwali indeed but will the next year as well be as happy and shiny?
We sincerely pray that next year continues to remain as happy and as rewarding for everyone around. Coming back to my particular view, the last 12-18 months have seen an unprecedented amount of wealth creation, the biggest and the best that I have seen in my career. The Indian stock market added more than $2 trillion in the last 18 months in terms of wealth and the global markets created around $60 trillion wealth from the lows of March.

So obviously these things are unlikely to get extrapolated over the next 12-18 months. While one remains optimistic, one will also have to tamper down on the expectation going forward and I think making money will be more difficult. One will have to be very agile and open to rotating one’s thoughts. One will have to be open to investing in new sectors.

Shankar Sharma says you have inspired him to buy liquor companies. Is that what is happening this Diwali, people celebrating the year gone by and drinking more?
That is very simplistic to say. Whether one is sad or happy, one always drinks liquor and that is the core to the belief. I do not want to discuss specific stocks. But these businesses continue to be on a compounding growth path for India and that will continue for a long period.

But on a more serious note, I want to point out one thing that life is looking like a Ramrajya and it is all hunky dory because everyone has made so much money in the last 12-18 months. But let me put a word of caution that there are clear cut pockets in the market wherein there is overvaluation and maybe we do not have the skill to value many of these companies. But going by my past experiences, in 2002 I was being told the same thing that I do not know how to value a dotcom company but eventually earnings and cash flows have to justify what investors are buying and let us say this quarter and next quarter there is much disruption; many commodity prices have gone haywire, our logistics cost have gone haywire. So we have to be very careful in investing.

One has to know the subject extremely well. Otherwise, one or two quarters of bad earnings like what happened in the pharma companies and stocks are down 30%, 40%, 50%.

While the India story remains very strong, we are all very bullish in the medium and long term but one has to really know the companies very well. Do not go by tip, do not go by what is fashionable, do not have this left out feeling because so many people made so much money. Don’t buy whatever is available. I am just putting a word of caution here. Look at what happened to the market in last two weeks. So many stocks have corrected more than 25% in two weeks while Nifty is only down 500 points.

You miss a small thing and stocks get…