Meme-stock mania is back, with the MEME ETF-tied to the Solactive Roundhill Meme Stock Index-rising 61 percent this year. Risk-on investments are the most popular among retail investors in more than 18 months, reports the WSJ. You can’t blame retail investors in India for going ga-ga over stocks. Call unwinding was seen at below 4,200 strikes along with heavy put writing, which likely sets the stage for another leg of the rally. If options positions are anything to go by then the rally may still have some steam left. Polycab has been one of the big outperformers of the year, gaining over 50 percent. But looking at the craze for defence stocks and also companies like Polycab which are an indirect play on the B2G (business to government) segment, the government’s credibility as a paying customer seems to have undergone a dramatic rerating. Not long back, investors would shy away from companies selling to the government because there was no saying when the payments would be cleared. In addition, the management is expecting to hit the revenue target of Rs 20,000 crore much before FY26, which was the date it set earlier. Shares of wires and cable maker Polycab India are on a roll after reporting strong first quarter earnings. Not to mention competition from the likes of AirBnB and home stays. Cynics counter saying that pricey real estate and rising wage bills due to talent shortage will force hotels to raise tariffs further, to a point where demand will begin to hurt. Hospitality bulls are saying that this time is different, because many hotel chains are following an asset light model and are also in no hurry to add capacity. The stock returns of most hotel chains look good post-COVID, but they don’t have a long term track record of having created wealth. There is reason to believe that the hotel industry will do well in the foreseeable future, but at the same time investors should remember that hotels are a cyclical business. The hospitality story is pretty straightforward-rising room rates, strong demand despite the high rates and slower addition of rooms. Indian Hotels shares were among the prominent gainers in Wednesday’s trade, climbing around 3 percent. (There is a second part to that adage-roots don’t grow to hell, but it is not yet time for that one)Īfter a couple of months of consolidation, the hotel story appears to be finding takers again. Stocks may be booming, but having been through the correction between October 2021 and March 2022, many investors may have realised the truth in the adage that trees don’t grow to heaven. Combine this with the popular perception that stock valuations are beginning to get expensive, then it makes sense to encash some of the paper wealth and deploy it in other assets. That is no longer the case as both fixed income instruments and real estate are doing well. One possible reason is that there are alternatives for retail investors today, unlike three years ago when equities was the only game in town, thanks to low interest rates and a listless property market. So what does it say about the near term trend when local investors-who have been more right than wrong in the last three years-decide to take some money off the table? This is in stark contrast to the previous bull runs when they were usually the ones left holding the bag when the rally ended. Post-COVID, domestic investors have become the deciding vote for market trend. The plot has changed now, with FIIs buying aggressively and domestic investors using rallies to book profits. Till a few months back, foreign institutional investors were selling relentlessly, and domestic funds/individual investors were steadfast buyers. No mathematical formula or yardstick alone can be relied on for identifying growth stocks or for detecting when their earnings reach maturity.
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