Will avoid companies I don’t understand or where valuations are stretched: Madhu Kela

Indian equity benchmarks have rewarded investors with phenomenal returns in Samvat 2077, with the Nifty50 gaining 40 percent. The market showed resilience against the second wave of the pandemic as investors cheered the pace of vaccinations amid liquidity aplenty. It has been one of the best years for the market, with a lot of retail investors making a lot of money.

Both headline indices ended the first day of Samvat 2078 half a percent higher. The Sensex rose 295.7 points to end the special, one-hour-long Muhurat trading session at 60,067.6 and the broader Nifty50 gained 87.6 points to settle at 17,916.8. Brokers said buying activity gathered momentum as investors opened their books on the first session of the New Year.

Will this continue going forward?

In conversation with CNBC-TV18, veteran investor Madhusudan Kela, Founder of MK Ventures, said looking at the absolute money made in last 12-18 months, and looking at the way the index has risen, one needs to be cautious now.

“I would like to divide this market into two parts: one where you can clearly and distinctively see valuations being a stressed, and the kind of euphoria you can feel... I would personally avoid those kinds of companies possibly which I don't understand or where the valuations are really stretched out," he said.

"If you are invested in that category of ideas, you need to be a little more careful, because those stocks have gone up a lot and valuation comfort is not there,” he warned.

Kela believes there is a compelling pocket of the market where there are still able a lot of ideas. "There, valuations are still reasonable and the market, for whatever reason, continues to provide that opportunity,” he said.

Kela's advice to new investors: Don't buy just about anything.

"There is a lot of momentum out here and there is such enormous amount of feeling of being left out. So people are just buying anything in the momentum. We have seen how it all ends, it all ends very, very ugly. So it is your own hard earned money. Just don't do it because someone gave you a tip and stuff like that. Do your homework, make sure that you are convinced about what you are doing," he said.

For those who don't understand the market, he suggests relying on professionals money managers.

"Coming to markets what I like is good old value side of the market, which includes the manufacturing sector, which is benefiting out of China Plus One story, public sector companies, public sector banks, the old thing basically where I can still see a lot of value... Hopefully, there is still money to be made out there,” said the market veteran.