The Indian equity benchmark indices scaled record highs Thursday as Sensex hit 59,957 and market veteran Shankar Sharma said the market is nowhere close to overflowing levels.

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"Current market goes back to my lake of returns theory. Right now where the markets are, they are nowhere close to overflowing levels," he said. The Indian market can easily give 15-20 percent compounded growth, he added.

Every asset class has a finite amount of return potential based on its long-term return characteristics. It is like the capacity of a lake or a reservoir. A lake can hold only a finite amount of water. So when the levels of returns in any asset reach extremely low levels as compared to its long-term returns, it is time for the lake to start filling up.

And when the returns (or water levels) overflow, the asset class overshoots its long-term trend. That’s when the markets flood and cause devastation through a bear market.

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"The lake of return fell from 2008 to March 2020 and from there it has started to rise. We are up 120 percent from there but on a 10-11 year basis, it is nowhere close to 15-20 percent CAGR. The capacity for the Indian stock market lake is easily between 15-20 percent," Sharma told CNBC-TV18.

According to Sharma, the influx of new investors is a secular structural change that can increase the return potential of the market by 4 percent.

"That (influx of new investors) is a structural shift in investing strategy and investing patterns. This is increasing the capacity of the lake from perhaps 15 percent return potential to maybe 2-4 percent higher. You should start viewing the new age investors as a large aggregate fund itself which should rank alongside DIIs and the FPIs," he added.

He says these new investors are using social media platforms to seek details that even seasoned analysts might overlook and driving the rally higher.

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"There are dedicated Telegram channels with thousands of followers who debate ideas, who discuss all numbers of companies. They go into the depths of the financials, they know a lot of details about the companies which even seasoned analysts might overlook and then that information gets disseminated over thousands of Telegram, Whatsapp accounts. So it is a whole new force," he said.

These new investors are fearless as they have never experienced a bear market, he said.

"They (investors) have entered (market) at the right point out of luck than anything else ... so the new investors are a fearless bunch of people. They don't know what a bear market looks like, they have not experienced it and thanks to the Fed they may not even experience it the way we have," he said.

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(Edited by : Yashi Gupta)

First Published:Sept 23, 2021 5:37 PM IST