Will The Stock Market Crash?

Summary

The Indian stock market's soaring PE ratios and Sensex crossing 80,000 raise concerns about a potential bubble. Experts debate overvaluation, with retail investors driving the market and foreign investors showing confidence. High P.E. ratios in sectors like defense and green energy, and the impact of the budget on the market are discussed, highlighting the risks and opportunities for investors.

Takeaways

• 📈 The Indian stock market has seen significant growth, with the Sensex crossing 80,000 for the first time and a rapid increase in the number of retail investors.
• 🤔 There is a debate on whether the Indian market is overvalued, with some experts like Sanjeev Prasad of Kotak Institutional Equities warning of a potential bubble.
• 💼 The participation of retail investors, especially younger ones, has surged since the COVID-19 pandemic, leading to a bull run in the market.
• 📊 The P.E. Ratio of many Indian companies is high, with 104 companies having a ratio over 50, indicating that they might be overvalued.
• 💡 The report by Kotak Institutional Equities suggests that the current valuation of Indian companies is not sustainable, highlighting the risk of a potential market correction.
• 🌐 Foreign investors are also positive about the Indian stock market, contributing to its growth, with a significant increase in their investments in recent months.
• 💼 Companies are not investing as much due to fears of competition from large conglomerates like Adani and Ambani, which could impact future earnings.
• 🏦 Changes in government policy, such as allowing retirement funds to be invested in the stock market, have contributed to the market's growth.
• 🚀 The success of new stock brokerage apps has made it easier for people from smaller cities to invest in the stock market, further fueling the market's rise.
• 💡 SEBI has warned investors about the risks associated with small-cap stocks, advising careful consideration before investing in these volatile assets.
• 💼 The market's performance is influenced by various factors, including the budget, which can have both short-term and long-term impacts on investor sentiment and market stability.

Q & A

What is the current state of the Indian stock market according to Kotak Institutional Equities?

The report by Kotak Institutional Equities indicates that the PE ratio of 104 companies is more than 50, suggesting that these companies are overvalued.

What does Sanjeev Prasad, CEO of Kotak Institutional Equities, think about the Indian market?

Sanjeev Prasad believes that the Indian market has gone insane, implying that the current valuations are not sustainable.

Why are companies not investing despite high profits?

Companies are hesitant to invest due to the fear of competition from conglomerates like Adani and Ambani, who are often favored by the government for contracts.

What warning did SEBI give regarding investment in small-cap stocks?

SEBI warned investors in March to invest in small-cap stocks after careful consideration, highlighting the risks associated with these stocks.

What milestone did the Sensex achieve on July 3, 2024?

On July 3, 2024, the Sensex, which consists of 30 major companies in the Bombay Stock Exchange, crossed 80,000 for the first time.

What is the role of retail investors in the current bull run in the Indian stock market?

Retail investors, particularly young ones, have significantly increased their participation in the stock market, driving the bull run. Their numbers have grown from 1 crore in July 2010 to 9 crore by April 2024.

How have new stock brokerage apps impacted the stock market?

New stock brokerage apps like Zerodha, Angel One, Groww, and Upstox have made it easier for investors from Tier 2 and Tier 3 cities to participate in the stock market, contributing to the market's growth.

What is the significance of the Warren Buffet Indicator in relation to the Indian stock market?

The Warren Buffet Indicator measures the ratio of the total market capitalization to the country's GDP. Currently at 1.02, it is higher than the historical average of 0.91, suggesting that the Indian stock market is overvalued.

What are the concerns regarding the high PE ratios of Indian companies?

High PE ratios, such as those of companies like Zomato with a PE ratio of more than 500, indicate that investors are paying a premium for stocks that may not be justified by the companies' earnings, raising concerns about sustainability.

How does the government's budget impact the stock market?

The budget can have both short-term and long-term impacts on the stock market. Positive budget announcements can boost the market, while negative ones or changes in tax policies, such as an increase in capital gains tax, can lead to a correction or a crash.

What advice is given to investors regarding their portfolio allocation in small-cap stocks?

Investors are advised to limit their exposure to small-cap stocks due to their high volatility and unpredictable nature. It is recommended to maintain a fixed contribution to small caps in their portfolio regardless of market conditions.

Outlines

00:00

📈 Indian Stock Market's Record Highs and Concerns

The Indian stock market reached unprecedented heights with the Sensex crossing 80,000 for the first time on July 3, 2024. The market has seen a rapid rise, jumping from 70,000 to 75,000 in 80 trading days and then to 80,000 in 58 trading days. The Nifty 50 also hit an all-time high. Despite the excitement, concerns about the market being overvalued and the possibility of a crash are raised. Sanjeev Prasad, CEO of Kotak Institutional Equities, warns that the market is ignoring risks, and SEBI advises caution in investing in small-cap stocks. The video will address questions about the market's high valuation, potential overvaluation, and the possibility of a crash.

05:02

💼 The Impact of Retail Investors on the Market

The surge in the Indian stock market is attributed to the significant participation of retail investors. The number of registered investors on the National Stock Exchange has grown exponentially since COVID, from 1 crore in July 2010 to 9 crore by April 2024. This has shifted control of the market from foreign companies to individual investors, many of whom are young and from non-metro cities. The ease of investing through apps like Zerodha, Angel One, Groww, and Upstox has attracted more investors, leading to a bull run. However, the sustainability of this trend and the potential risks it poses to the market are discussed.

10:02

🌐 Global and Local Investor Sentiment

Foreign investors have shown strong confidence in the Indian stock market, with $5 billion invested in the past two months. The Indian market's contribution to MSCI's emerging markets index has risen from 8% in 2020 to 18%. Morgan Stanley's strategist, Ridham Desai, highlights India's growing global influence as a significant opportunity for investors. This positive sentiment, combined with the domestic excitement, has contributed to the Sensex crossing 80,000. However, concerns about the market being in a bubble and the potential for a correction or crash are also discussed.

15:04

🏭 Corporate Investment and the Future of the Market

The video discusses the current profitability of Indian companies and the potential risks they face in the future. Despite significant increases in net sales and profits, companies are not investing in new land or factories, raising concerns about their long-term sustainability. The fear that companies like Adani and Ambani will dominate contracts further discourages investment. The high P.E. ratios of many companies, including those in traditional sectors like automotive, are a cause for concern. The video also touches on the Warren Buffet Indicator, which suggests that the Indian stock market is overvalued compared to its historical average.

20:06

📉 The Risks of a Stock Market Bubble

The video outlines the risks of a potential stock market bubble, focusing on high P.E. ratios and the volatility of small-cap stocks. SEBI's warning about the dangers of investing in small-cap stocks is highlighted, along with the historical volatility of these stocks. The potential impact of the union budget on the stock market is also discussed, with the possibility of new taxes affecting market sentiment. The video concludes by advising investors to be cautious and to invest in areas they understand, rather than following the crowd.

Keywords

💡PE Ratio

The Price-to-Earnings (PE) Ratio is a financial metric that measures the valuation of a company by comparing its share price to its earnings per share (EPS). In the video, it is mentioned that a high PE ratio indicates that investors are paying a high price relative to the company's earnings, suggesting that the stock might be overvalued. The script cites a report by Kotak Institutional Equities showing that 104 companies have a PE ratio of more than 50, which is considered unusually high and a potential sign of a market bubble.

💡Indian Market

The term 'Indian Market' in the context of the video refers to the financial market in India, specifically the stock market. The video discusses the performance and valuation of the Indian stock market, highlighting concerns about overvaluation and potential risks. The script mentions that the market has seen significant growth, with the Sensex crossing 80,000 for the first time, but also raises questions about whether this growth is sustainable.

💡Retail Investors

Retail investors are individual investors who buy and sell securities for their personal accounts, as opposed to institutional investors like banks or mutual funds. The video script highlights the significant role retail investors have played in the recent bull run in the Indian stock market. It notes that the number of registered investors on the National Stock Exchange has grown dramatically since COVID, with retail investors now controlling the market more than foreign portfolio investors.

💡Sensex

The Sensex, short for the Sensitive Index, is a stock market index of 30 major companies listed on the Bombay Stock Exchange (BSE). The video script mentions that the Sensex crossed 80,000 for the first time, marking a historic milestone. This achievement is part of a broader discussion about the performance and valuation of the Indian stock market.

💡Nifty 50

The Nifty 50 is a benchmark index for the National Stock Exchange (NSE) in India, consisting of 50 major companies. The video script notes that the Nifty 50 has also crossed its all-time high, reflecting the overall bullish trend in the Indian stock market. This index is often used to gauge the market's health and investor sentiment.

💡Overvalued

Being 'overvalued' in the financial context means that the current market price of a security or the entire market is higher than its intrinsic value, based on fundamental analysis. The video discusses concerns that the Indian stock market is overvalued, with financial experts like Amit Goel suggesting that the current valuations are unsustainable and represent the biggest bubble in the history of the world equity market.

💡Stock Market Bubble

A stock market bubble refers to a situation where the prices of securities rise significantly above their intrinsic value, often driven by speculation and investor enthusiasm rather than by fundamentals. The video script raises the question of whether the Indian stock market is in a bubble, given the high PE ratios and the rapid increase in stock prices, suggesting that a correction or crash could be imminent.

💡Warren Buffet Indicator

The Warren Buffet Indicator is a financial metric created by Warren Buffet that compares the total market capitalization of publicly traded companies to a country's GDP. The video script mentions that the current value of this indicator for India is 1.02, which is higher than the historical average of 0.91, suggesting that the Indian stock market may be overvalued.

💡Small-cap Stocks

Small-cap stocks are shares in smaller companies that typically have a market capitalization of less than Rs 5,000 crores. The video script discusses the risks associated with investing in small-cap stocks, noting that they can be highly volatile and may not perform in line with broader market indices like the Nifty. SEBI has warned investors to invest in small-cap stocks with caution.

💡Budget

The term 'budget' in the video refers to the annual financial statement presented by the government, which outlines its revenue and expenditure for the coming year. The video script suggests that the budget can have a significant impact on the stock market, either positively or negatively, depending on the policies and tax changes it introduces. There is a discussion about the potential for increased capital gains tax, which could affect investor behavior and market performance.

💡Investment Apps

Investment apps, such as Zerodha, Angel One, Groww, and Upstox, are platforms that facilitate retail investors to invest in the stock market. The video script highlights the role these apps have played in increasing the participation of retail investors, especially from Tier 2 and Tier 3 cities, in the Indian stock market. This has contributed to the growth and volatility of the market.

Highlights

The PE ratio of 104 companies is more than 50, indicating potential overvaluation.

Sanjeev Prasad, CEO of Kotak Institutional Equities, claims the Indian market has gone insane.

Investors are reportedly unaware of the risks they are taking in the current market.

Companies are hesitant to invest due to the dominance of Adani and Ambani, a fact unknown to many investors.

SEBI warns investors to be cautious with small-cap stocks, suggesting a potential bubble.

Historic milestone: Sensex crosses 80,000 for the first time on July 3, 2024.

Sensex sees a significant jump from 70,000 to 80,000 in just 58 trading days.

Nifty 50 also hits an all-time high, reflecting a broader market surge.

The Indian stock market's valuation is a topic of debate, with questions about overvaluation and potential crashes.

Amit Goel, co-founder of Page 360, suggests the Indian market is overvalued and compares it to a bubble.

SEBI's chief argues that the market's valuation reflects global trust in India's growth, not overvaluation.

Retail investor participation has surged since COVID, significantly impacting the market.

Individual investors, particularly young ones, are now major players in the stock market.

New stock brokerage apps have facilitated easier market access for investors from smaller cities.

The government's policy changes have made investing in the stock market more attractive for retirees.

Foreign investors are also bullish on the Indian market, contributing to the Sensex crossing 80,000.

High P.E. ratios in many Indian companies suggest overvaluation, with 104 companies exceeding a P.E. ratio of 50.

Kotak Institutional Equities warns that the current valuations are not sustainable.

The Warren Buffet Indicator suggests that the Indian stock market is overvalued compared to historical averages.

SEBI advises caution in investing in small-cap stocks due to their volatility and potential risks.

The budget's impact on the stock market is unpredictable, with potential long-term effects if new taxes are introduced.

Transcripts

'A report by Kotak Institutional Equities shows that

the PE ratio of 104 companies is more than 50.

'Sanjeev Prasad, the CEO, says that the Indian market has gone insane.'

'Investors have no idea about the risk they're taking.'

'Companies are not investing because of Adani and Ambani.'

'But the investors don't know about it.'

'In March, SEBI warned that investors should invest in small-cap stocks

after careful consideration.'

'They're asking a question

--Is our stock market in a bubble?'

July 3, 2024, was a historic day for the Indian stock market.

Sensex, consisting of 30 major companies in the Bombay Stock Exchange,

crossed 80,000 for the first time.

In fact, last month, Sensex broke every record.

It saw a jump of 70,000 to 75,000 in 80 trading days.

And a jump of 75,000 to 80,000 in 58 trading days.

India's second major benchmark, Nifty 50,

consisting of 50 major companies in the National Stock Exchange,

has also crossed its all-time high.

The market is going crazy.

That's why people are becoming millionaires day by day.

But there's one question, especially before the budget,

that everyone has in mind.

Is our stock market overvalued?

If yes, is there going to be a stock market crash?

"Something is happening in India's economy that needs to be feared."

On one hand, financial expert Amit Goel, co-founder of Page 360,

an asset management company, says that the Indian market

is overvalued.

This trend won't last long.

And Indian equities are the biggest bubble

in the history of the world equity market.

On the other hand, there's SEBI's chief,

who says that our markets aren't overvalued.

In fact, it shows the trust of the entire world on India's growth.

So, who is right?

In this video, I'll answer three questions.

Why is our market so high?

Is it overvalued?

If yes, is there going to be a crash?

First, let's understand why our stock market has been in a bull run for so long.

A major reason is the participation of retail investors in the stock market.

Look at the graph on the screen.

This graph shows how many registered investors

are on the National Stock Exchange.

Notice how fast the growth of these investors has been since COVID.

In July 2010, the number of registered investors was 1 crore.

And by April 2024, the number has increased to 9 crore.

And because of this spike,

these individual investors are now controlling our stock market

and not the big foreign companies.

Deepak Shenoy, the founder of a portfolio management service,

said that for the first time in 20 years,

individual investors and mutual funds control the stock market

more than foreign portfolio investors.

And these individual investors are very young.

40% of them are under 30.

And this trend will continue.

Every month, new people from Maharashtra and Uttar Pradesh

are becoming investors in our market.

In 2010, there were only 7 lakh people from Uttar Pradesh

who had invested in the National Stock Exchange.

This number will reach 1 crore by next year.

And because new individual investors are coming into the market,

and the market is now in the hands of individual investors,

it has led to a bull run in our market.

Now the question is, why are these young investors coming into the market?

There's a reason behind this.

New stock brokerage apps like Zerodha, Angel One, Groww, and Upstox

have made it easier for Tier 2 and Tier 3 customers

to invest in the stock market.

And these people are not coming from cities like Delhi and Mumbai.

They're coming from small cities.

Like in 2023, 80% of Upstox's customers

were from non-metro, non-Tier 1 cities.

How many shares do you have?

855.

L&T shares?

L&T shares.

I also have Ultratech shares as well.

Ultratech?

How many shares do you have?

2,475.

The government has also made some changes

which has made it easier to invest in the stock market.

For example, in 2015, the government changed the rules

so that retirement funds like money from the National Pension System

could be invested in the stock market.

With this, many retirees' money is now in the stock market

and the bull run is on.

Good investment is one way to increase your long-term wealth.

Another good way is to invest in your own skills

so that you can play a leadership role in top startups and companies.

And this will only happen when you have relevant skills and a strong network.

And to solve this, there's a new-age business school

with more than 1,200 employment partners.

Like Google, Amazon, BainCapital, and Zomato.

I'm talking about the Scaler School of Business in Bengaluru

which has launched an 18-month PG program in business and technology.

They are reshaping business education

because their course is designed by experts

who have worked in billion-dollar businesses like Uber, Myntra, and McKinsey.

Here, you have to work on real-world projects

which have been sourced from real companies.

In addition, the curriculum requires you to launch your own business.

You have to come up with an idea, earn revenue,

and raise money from venture capital firms.

And because this B-School is run by Scaler,

which has been in the education industry for 7 years,

it has more than 1,000 employment partners.

Not every B-School in India has such a strong employment network.

Their online program's placement rate is 96%.

The median CTC is 25 lakhs, which is verified by B2K Analytics.

It's the same company that verifies IIM's reports.

And now, they're handpicking 75 students for their launching cohort

which will start in August 2024.

Applications are open and you can get a full scholarship.

Remember, this school is for those

who want to play a leadership role in startups and MNCs.

The link to the application is in the description.

To get a discount, you can use the SSBMOHAK coupon code.

Now, let's come back to the video.

Apart from local individual investors,

foreign investors are also very positive about the Indian stock market.

For example, in the past two months,

foreign investors have bought Indian stocks worth $5 billion.

In fact, in MSCI, which is Morgan Stanley's stock index for emerging markets,

Indian stock market's contribution was only 8% in 2020.

Now, it's 18%.

Morgan Stanley's strategist, Ridham Desai, said that

India is gaining more power in the world

which is a huge opportunity for investors.

This excitement between Indian and foreign investors

is why Sensex has crossed 80,000.

In fact, the stock market is doing so well

that many businessmen are now thinking that instead of investing in business,

they should invest in the stock market.

Saurabh Mukherjee, the founder of an investment company, said that

many entrepreneurs are coming to him who want to do this.

And Saurabh says that this is a logical decision for many people.

For example, if a businessman invests Rs 50 lakh in his business,

he has to work hard to earn profits.

After which he has to pay a corporate tax of 25%.

But if he's investing this money in the stock market,

which is in a bull market

he has to pay a long-term capital tax of 10% on his profits.

Isn't it strange that the stock market is doing so well

that people are investing in the stock market instead of their businesses?

This is why many people are asking the question:

Is our stock market in a bubble?

"We're going to talk about the bubble."

"How long has the Indian stock market been in a bubble?"

"Nobody in the last 4 years has seen a serious correction."

"It's something to think about."

To check whether a stock market is in a bubble or not,

we have to do research on many companies in the stock market.

One way to check this is to compare the price of a company's stock

with how much money the company is earning.

To check this, many investors look at the P.E. Ratio.

Price to Earning Ratio.

This is the stock price of a company

divided by the company's income per share.

The story gets interesting because, according to the P.E. Ratio,

many Indian companies are overvalued.

In fact, 2 months ago, the report by Kotak Institutional Equities showed that

there are 104 companies in India whose P.E. Ratio is more than 50.

This means that these companies are earning only Rs. 1 per share,

but the investors are paying Rs. 50 to buy their stock.

Usually, when the P.E. Ratio of a company is around 30,

it's considered reasonable.

But now, more than 100 companies have crossed the 50 mark.

Kotak has shown that the P.E. Ratio of 9 companies is more than 100.

This means that the investors are paying Rs. 100

to buy the stock of the company that is earning Rs. 1.

This is why Kotak has written a full report

where they say that this valuation is not sustainable.

They say that the number of companies whose P.E. Ratio is more than 50

has increased 10 times in the last 10 years.

Let's talk about Zomato, whose P.E. Ratio is more than 500.

Now, you must be wondering

why investors are buying the stocks of such companies

whose P.E. Ratio is more than 500.

Kotak says it's because people want to jump on the bandwagon.

They say that as soon as Zomato announced that they're earning a profit,

many investors got excited and started buying their stocks.

This increased their share price and P.E. Ratio.

In fact, the CEO of Kotak Institutional Equities gave a big statement.

Sanjeev Prasad, the CEO, said that the Indian market is turning a blind eye

towards the risks that it could face in the next 2-10 years.

Gulzar Natarajan, an ex-IAS officer, also did an analysis

which showed that Indian companies are working in a very strange way.

He analyzed the data of more than 5000 publicly listed companies.

He found that between 2018 and 2022,

their net sales increased by more than 50%

and net profits by almost 200%.

So now these companies are earning a lot of money

because of which investors are buying their stock.

But the question is, will these companies earn this much money

in the years to come?

Because the money coming to their companies

is not being invested to buy new land or to build new factories.

So there's a fear that these companies are earning a lot of money right now

but what will happen in the next 2-3 years?

Arvind Subramaniam, who was the Chief Economic Advisor of our government,

also wrote in the Indian Express that the companies are earning money,

but they fear that when they invest money

in factories or in building new things,

they will lose in the competition against some companies.

Which companies will they lose against?

Against companies like Adani and Ambani,

which our government prefers.

So basically, companies fear that Ambani and Adani will get the contracts,

so why should they invest?

But if they don't invest, how will they earn money in the future?

And individual investors don't know about this yet.

Right now, investors are just excited that companies are earning a lot of profit.

But they don't think about what will happen in 5-10 years.

And the excitement among investors is limited to only some sectors

such as infrastructure, defense, and green energy.

Defence companies like Bharat Electronics, Garden Reach Shipping,

and Bharat Dynamics have doubled their stock prices in the past 9-12 months.

And their P.E. ratios are very high.

In fact, it's so high that even established companies'

valuations look small compared to these companies.

Such as French military aircraft maker Dassault Aviation,

and US shipbuilding company Huntington Ingalls,

their valuations are much lower than Indian companies.

But their business is much bigger than Indian companies.

It's not that American companies don't have a high P.E. ratio.

In fact, NVIDIA's P.E. ratio is more than 70.

The problem in India is that many companies have a high P.E. ratio

which are in the traditional sectors.

Such as car companies that run on diesel or petrol.

And they don't have any technology advantage.

It's possible that after 10 years, no petrol car will be sold.

So why is their P.E. ratio so high?

Kotak has shown in their report that due to electric vehicles,

the value of traditional car companies should decrease in the future.

But their valuation and P.E. ratio is high.

So why is that?

Because people are jumping on the bandwagon?

That's why Kotak's CEO said that he thinks the market has turned a blind eye

and many risks are visible to everyone

but the market is ignoring this risk.

A similar trend took place 25 years back

when a dot-com bubble emerged in America.

Investors were crazy about every company whose name ended with a dot-com.

Because of this trend, many individual investors

started buying stock of internet companies

even if their revenue wasn't that high.

Obviously, a bubble formed.

And this bubble burst one day.

Because of which many investors suffered a huge loss.

Apart from P.E. ratio,

many people use another indicator to see the valuation of the stock market.

It's called Warren Buffet Indicator.

It was created by Warren Buffet,

one of the most successful investors in the world.

This indicator measures the ratio of the total market capitalization

or the value of the stock market to the country's GDP.

This value is compared to the historical average.

Currently, the Warren Buffet Indicator for India's stock market is 1.02.

And the historical average of 10 years is 0.91.

This means that the Warren Buffett Indicator is higher than the historical average.

This means that the Indian stock market is overvalued.

But many people aren't bothered by such things.

For example, Mark Mobius, a fund manager,

says that the high P.E. ratio only tells a part of the story.

He says that India's economy is a growing economy.

And many sectors will perform well.

So the high P.E. ratio of the stocks is justified.

Investors don't need to worry.

Morgan Stanley's chief strategist, Ridham Desai, says that

India's bull market will continue.

Liquidity is good in the market.

And people's trust in the market is strong.

So why should you worry?

There's a problem here.

People who have invested in big companies, like Reliance or Tata,

don't need to worry.

But people who have invested in small companies,

like small cap companies, need to worry.

For example, Amit Goel, who we talked about earlier,

says that investment in the small companies have surpassed all expectations.

Devina Mehra, the MD of First Global, says that the market is not in a bubble.

But many small-cap stocks are overvalued.

In March, SEBI warned that small-cap stocks should be invested in

after careful consideration.

Publicly traded companies can be divided into different categories.

They can be divided according to their valuation or market capitalization.

Large-cap companies are the top 100 companies

with a market cap of more than Rs 20,000 crores.

They're also called blue chip stocks, like Reliance or Tata.

Mid-cap companies have a market cap of Rs 5,000-20,000 crores.

And small-cap companies have a market cap of less than Rs 5,000 crores.

Devina Mehra says that

investors should reduce their exposure to small-cap companies.

These are the companies whose valuation is less than Rs 5,000 crores.

Devina says that small-cap companies' stocks don't rise and fall with Nifty.

Their trend is different.

So, it's difficult to predict how their stock will rise.

They rise and fall at an exponential rate.

So it's difficult to recover from these stocks.

For example, in 2008, when there was a global financial crisis,

the small-cap index fell by 78%.

And it didn't recover for 8 years.

Some people say that they've made a lot of money by investing in small caps.

For example, in the past 10 years,

the average annual return on small cap mutual funds is 22%.

While the return on large-cap funds is only 14%.

But remember that these stocks are volatile too.

They might rise this year and fall the next.

How many retail investors can handle this volatility?

People invest pretty emotionally.

They invest a lot of money in a well-performing small-cap stocks.

But when they fall next year, their portfolio falls too.

So it's better to decide how much of your portfolio's contribution

will go to small cap.

And whether the market goes up or down,

you should keep that contribution fixed.

SEBI itself stated that investors should reduce their exposure to small caps.

So, I've talked about two risks of a bubble in the stock market.

First, many companies have a high PE ratio.

And second, small caps can be dangerous for retail investors.

The third risk is budget.

"Honourable Speaker, I present the budget for 2023-24."

Christopher Wood, the global head of equity strategy at Jefferies,

said that the Indian stock market can be badly affected by the union budget.

The stock market and the budget

have been in a close relationship for a long time.

If the budget is positive for the economy,

the stock market will do well.

If it's negative, the stock market will fall.

Many people will predict what will happen in the stock market after the budget.

But in the long term, these movements don't matter.

In fact, in 2020, Morgan Stanley announced that

the impact of the budget doesn't matter in the market anymore.

In 2004, the UPA government abolished the long-term capital gains tax

from the share market.

This means that you'll have to pay less tax

if you invest in the stock market for more than a year.

This should be a good thing for the stock market.

But the index fell after the announcement of the budget.

So the market is unpredictable.

If someone tells you that they know exactly what will happen in the market,

they're fooling you.

Because if it were me, I wouldn't make a video.

I'd put my money there and make a profit.

But some people say that

the budget can have a long term impact on the stock market

if new taxes are introduced.

For example, Christopher Wood said that if a new capital gains tax is introduced,

the stock market can react negatively.

He said that the government has been thinking for a long time

to increase the capital gains tax.

Remember, I said that the corporate tax rate is 25%

and the long-term capital gains tax is 10%.

Because of this, many entrepreneurs are investing in the stock market

instead of their businesses.

So it's possible that the government will try to reduce this difference

so that at least entrepreneurs will be motivated to invest in their businesses.

He said that the government believes that increasing the capital gains tax

will reduce the speculative gambling-like trading.

This will help people make good long-term investments.

This can lead to a correction in the stock market.

Correction doesn't mean a crash.

Correction happens for a short period of time.

But a crash has a huge impact on the stock market.

Many people believe that there will be a correction in the market.

Either because many companies have a P.E. ration of more than 50

or because the government can increase the capital gains tax.

Whether there will be a crash or not depends on the theory you believe in.

Do you believe that the P.E. ratio of these companies is so high

because in the future, these companies will have a huge income?

Investors are aware of this.

Or do you believe that the investors are investing blindly in the stock market

and many companies won't have a good income in the future?

People like Rajat Sharma say that you don't have to worry.

He is the CEO of Sana Securities.

He says that even if there is a correction or a crash in the market,

India is a bright spot, and a crash or a correction won't last long.

You have to decide whether, in case of a correction or a crash,

which situation should your portfolio be in?

The best advice is to invest in things that you have knowledge about.

Don't try to follow the crowd.

People started option trading by following the crowd.

To understand their situation, watch this video.

If you liked the video, subscribe to the channel.

See you in the next video.