Even in falling market Nifty might get OVERVALUED because of listed Indian startups - A future threat no one is talking about🔻

A small thread on how overvalued startups can make a well stable index like Nifty50 “Overvalued”.

Recently there are news and rumors that Zomato and Jio financial Services may get added in Nifty50 by march 2025. This will ruin the price to earnings ratio of Nifty50, as they’re replacing stocks like BPCL and Britannia Industries.

BPCL had current PE of 8 and Britannia at 54 PE, both these stocks are favored by value investors. However, since Jio Financials and Zomato have bigger market cap they will replace BPCL and Britannia in Nifty50.

This will eventually push NIFTY50 PE high since Jio Financials and Zomato have more than 110 and 314 PE respectively. This is not first time Nifty is facing overvaluation with new emerging companies entering index at overvalued stages and making broader markets overvalued for FIIs.

Back in 2000 during tech bubble, same thing happened when companies like Infosys had negligible profitability but at the same time due to bullrun/hype stock price had surged huge levels making it “Overvalued”.

Just before the burst of tech bubble in India along with K10 stocks (Ketan Parekh scammed stocks) the crash were Nifty went down by 66% in 2008 (highest till date), keeps reminding investors that paying high price for low profitable companies is not worth it in longer run.

Although contrary to this, Infosys and many other tech stocks did turn out to be surviving that period and posting huge profits today every year being part of Nifty50 - but key is to understand that paying right price for the company is equally important as much choosing the right company. I guess that’s why it’s always said in stock-market, “Bhav Bhagwaan che”.

What are we doing in such scenario where Nifty stocks seem overvalued?

There are prominently 3 ways to tackle this :

Ignore and keep investing, yes it’s that simple as I said in longer run whenever bubble burst and overvalued stocks shrink to their fair price you keep buying it and eventually if company is strong but just overvalued you will be benefited.

Diversify into more value based index funds or active funds. We personally have opted this, almost 40-80% of SIP is diversified into a Flexicap fund which invests in undervalued stocks and active fund manager always make sure this doesn’t strategy never changes.

The fund we are talking about works on principle of “Value Investing” and is highly famous among long term investors consistently beating CAGR of Nifty50 since more than a decade📈.

I think people would have guessed the fund name already😁

PS - This whole scenario of startups making into indexes like Nifty50 would be beneficial for them, no hate for them its just a perspective from broader market that we learnt from “Value Investing and Behavioral finance” Book✔️

Regards,

Team GROWTHSQUAD SEBI Registered RA no. INH000017763