The bubble and the elephant.

"Domestic equity markets on Thursday (28 December) scaled fresh record highs for another trading session amid the expiry of monthly F&O contracts for the December series. Strong buying action across all major sectors helped the benchmark indices to scale new higher for the day." BT. "India's benchmark Sensex Index, which tracks 30 large companies, has climbed over 16% this year, while the broader Nifty 50 index has jumped over 17% in that time." "The ascent of India's stock market value means it ranks behind only those in the United States, China and Japan, according to Refinitiv." CNN. "Foreign institutional investors (FIIs) had net sold stocks worth Rs 39,316 crore (Rs 393.16 billion) in September and October, but have net bought stocks worth Rs 40,372 crore (Rs 403.72 billion) from 1 November to 12 December." "Now, FIIs typically invest in large-cap and mid-cap stocks," but the "BSE SmallCap Index has risen by around 12% since end-October." "In fact, as of 8 December, there were 75 companies with a PE (price/earnings) ratio higher than 100 and 233  companies with a PE ratio higher than 50." This is because of domestic investors who are new to the markets, wrote Vivek Kaul. Surely, the RBI should be worried about asset price bubbles? "Our high fiscal deficit, high debt-to-GDP ratio, both higher than most of our peers, signs of overheating in key asset markets (stocks, gold and real estate have all run up dramatically in recent weeks) and ever-present geo-political tensions - not to forget the elephant in the room, general elections less than six months away - should all serve to induce caution." Mint. "In a memorable year for the equity market, Dalal Street investors added a whopping Rs 80.62 lakh crore (Rs 80.62 billion) to their wealth in 2023 as a raft of positive factors powered a stellar rally in stocks." ET. It is precisely because of the elephant that the RBI is frozen.  A large correction in stock prices will result in losses for domestic investors, who may cut spending, which will result in lower profits and lower tax collections. Suicidal before an election. "The central government's fiscal deficit stood comfortably at Rs 9 trillion in April to November period, about half of the estimated full-year target, as tax revenue grew in twin digits." Mint. If every bet on dud companies is winning, why not go for the real McCoy? "The count of those who trade in stocks directly is falling in favor of derivatives, despite the market regulator issuing warnings about the risks in futures and options (F&O) and the markets yielding attractive double-digit returns." Mint. "The frenzy to trade in futures and options among newbie investors has landed up drilling deep holes in their pockets," and "55% of the new traders have ended up buying more to average out their losses in trade." According to the Securities and Exchange Board of India (SEBI), 9 out of 10 individual investors incurred an average loss of Rs 110,000 in FY22. ET. Rs 80.62 billion in 2023. Will the bubble burst in 2024? Will the elephant panic? Happy New Year.