Hello Everyone My Name is CA Prashant Sisodiya and I welcome you all.
Let's talk about how this SIP bubble is expanding or have you wonder where the money we're spending on SIP every month in equity funds is going?
Is it going to the company? No! It's going to the ones selling shares of the company.
So, is there anything wrong happening here? Let me explain through an example.
Suppose there is only 1 stock in the market 'A' of 100 shares having market price of ₹10/share with a market cap of ₹1000. Assume stock is perfectly valued. (Based on forecasts, valuation models, Analyst Eswtimates etc..).
Now, our monthly SIP(let's say of ₹30) comes into the market and our fund manager have to invest our SIP into A because there is a maximum cash holding limit our fund manager can have.
Now, the fund manager have to buy it at a higher price say at 11 (obviously, because no one is ready to sell at 10), and then the fund manager will give forecasts/models to justify higher valuation and this is how price got inflated to ₹11/share and consequently market cap to ₹1100. Again in the next month process gets repeated, because rarely fund houses stops accepting fresh inflows.( Inspite of not having fruitful investment opportunities)
This Unstopping flow of money via SIPs (and also via multifold rise in the number of demat accounts) are resulting in bigger investors( FII, Promoters etc..) getting an opportunity of exit at higher prices, and retail investors left with shares at inflated prices and here media houses and influencers make retailers think like FII are dumb money now etc.
The moment earnings of companies fail to meet expectations and actual price discovery will occur, share prices will tank and the ones facing the heat will be the Retail Investors who blindly continued their SIP in hopes of their 10k turning into 1cr. in 20 years at CAGR of 12% influenced by some random financial influencers.
Generating constant descent returns at overvalued markets is not rational to expect.
We believe investors should be cautious before making any fresh investments as Small buying figures of FII in cash market and strong positions in option market indicating something else.
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