What should your percentage allocation to equity oriented mutual funds be right now? 80%? 20%? 40%? 100%? There's no simple answer.
The Indian equity markets have been riding a liquidity-driven wave for quite some time now. Buoyed by household savings that are flowing into stocks - some directly, and some through the mutual fund route - the broad indices have managed to hold their own, even amidst an extended paucity of earnings growth.
That valuations are rich is undeniable. The P/E Ratio of the bellwether NIFTY index now oscillates between 25 and 26 times current earnings; a number perilously close to its 2008 peak. And as is always the case, we're seeing retail moneys chasing past returns - an estimated 20,362 Crores flowed into equity/ equity oriented mutual funds in August alone. Is this wise? Probably not.