The acronym 'TINA' stands for "There is No alternative". Let us understand how it applies to the stock markets and whether it is really significant.
Cause of Tina Effect
Actually as in the current scenario faced in the Indian stock markets, markets have reached their peak valuations.
After the Union Budget 2018 had been announced with the levy of dividend tax and LTCG on gains of over Rs. 1 lakh, the stock market has corrected largely.
And even as the analysts and investor community had long anticipated the correction, they remain invested in equities as there were no other viable alternatives to fetch comparable returns at par with stocks.
This is what results into Tina factor or effect as the market now moves higher bit by bit due to more and more demand for stocks with no other driving factor as even after stock market correction, most of the capital continues to make its way into stock markets.
What are the various alternative investment strategies?
Why is there a Tina in favour of stock markets?
At the moment, fixed income securities are fetching you very poor interest rates of around 6 to 7 per cent at a commercial bank.
Real estate prices have gone nowhere and projects are increasingly getting delayed. On the other hand gold has given returns of just 3 per cent in the last one year. This means that all investment is skewed in favour of equity shares, which have over the last one year provided very good returns. The Sensex is up 24 per cent over the last one year.
This means that "There is no alternative to equities" at the moment.
Inflated equity prices on account of Tina
The Tina effect in favour of equities comes with a risk. Profits at companies ave failed to grow over the last few quarters. The Sensex trailing p/e is 24 times, which is much higher than the long-term average of 17 times.
This means that because there is no alternative investment strategies, investors have been chasing equities, resulting in inflated prices.
Interestingly, bond yields are now surging and the sovereign yields have gone as high as 7.57 per cent. This may result in a shift from equity to debt, resulting in a diminishing TINA effect towards shares.
As per Investopedia, there comes a scenario where the stock markets rise is mainly on account of the factor that other alternatives do not fetch viable returns and hence in a real way investors drift from a ideal portfolio which is more stock centric driven mainly due to higher returns on them. This is what leads to Tina effect.