What CJI Chandrachud’s ‘Stratospheric’ Market Remark Means for Equity Markets

Historical Context: The Indian stock market has seen significant fluctuations over the years, influenced by various political, economic, and global factors. The recent surge in the Indian headline indices, such as the S&P BSE Sensex and Nifty50, has been notable, especially since the market crash on June 4, 2019, following the election results that did not give a full majority to the Bharatiya Janata Party (BJP). This historical context is crucial for understanding the current market dynamics and the caution advised by the Chief Justice of India (CJI) DY Chandrachud.

Current Scenario: The Indian stock market has been on a record-hitting spree, raising concerns among market enthusiasts. CJI DY Chandrachud has advised the Securities and Exchange Board of India (Sebi) to exercise caution to protect investors’ money. He referred to the crossing of the 80,000 points milestone by the BSE as a significant event, emphasizing the need for regulatory authorities to maintain stability amid market exuberance.

Market Valuations: Several analysts and brokerages have cautioned investors about the current market valuations, which they consider stretched. Kotak, in its latest note, debunked the myth that Indian markets are trading at reasonable valuations. It highlighted that while the Nifty-50 Index may appear reasonably valued, most other parts of the market are trading at elevated multiples. For instance, non-BFSI stocks in the Nifty-50 Index have high 1-year forward P/E ratios, with Grasim Industries at the top and ONGC at the bottom.

BFSI Sector: In the BFSI sector, the lowest 1-year forward P/B ratio is for State Bank of India (SBI), which has increased from 1.4 in March 2019 to 1.3 in March 2014. Other BFSI stocks like HDFC Bank, Kotak Mahindra Bank, and Bajaj Finance have also seen changes in their 1-year forward P/B ratios.

Analyst Views: Analyst V K Vijayakumar from Geojit Financial Services believes that market corrections are imminent, considering the current “overbought” zone. Domestic institutional investors (DIIs) have been booking profits, with DIIs being net sellers of domestic equities worth Rs 2,375 crore on a recent Thursday.

CJI’s Recommendations: CJI Chandrachud has advised Sebi and the Securities Appellate Tribunal (SAT) to remain vigilant. He suggested opening new SAT benches to handle the increased workload due to higher transaction volumes and newer regulations. He emphasized the importance of SEBI and SAT in maintaining a stable investment environment, which can lead to economic growth through increased capital formation and job creation.

Regulatory Measures: Sebi chief Madhabi Puri Buch has urged market players to report any irregularities, emphasizing the regulator’s commitment to addressing systemic concerns. Sebi has also issued a circular on measures to instill confidence in the market, mandating the implementation of new rules for brokers in phases starting January.

Summary:

• Indian stock market has seen significant growth since the June 4, 2019, crash.
• CJI DY Chandrachud advises Sebi to exercise caution amid market exuberance.
• Analysts caution against stretched market valuations, especially in non-BFSI stocks.
• BFSI sector sees changes in 1-year forward P/B ratios.
• Market corrections are expected, with DIIs booking profits.
• CJI recommends opening new SAT benches to handle increased workload.
• Sebi emphasizes reporting irregularities and implementing new broker rules.

This summary provides a comprehensive overview of the current market scenario, historical context, and regulatory measures, making it suitable for students preparing for competitive exams.