Dangerous to Dance Until the Sensex Music Stops

When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing.

These words of Citigroup chief executive, Chuck Prince, in July 2007, have since then, been used by many to sound the bugle of any market crisis.

But the last time we heard them were in 2016. Global markets were just warming up to the idea of China growing at a slower rate and the US Fed raising interest rates. Nevertheless, neither of these managed to tame the global indices for long.

For Indian markets, 2017 turned out to be a dream year for equity investors. Demonetisation in November 2016, had forced even the reluctant investors into stocks and mutual funds. And a steady inflow of liquidity took stocks to new highs.

Add to that the hopes of an earnings recovery and India outdoing China in GDP growth rates.

Even three years after the 2016 market crash, there are no signs of improvement in economic growth. Not in China, nor in India.

Indian companies are still struggling to grow their earnings. Banks are unwilling to lend. Trade tariffs are threatening a global economic siege.

But the benchmark Sensex continues to soar higher. An unprecedented election outcome has added to the market euphoria in 2019. Sensex breached 40,000 levels and Mr Market's music is still playing.

So why should you worry?

Well, the stocks outside the Sensex have a different narrative. Many have been battered in 2018. And plenty of others have hardly yielded sufficient returns for investors in the past few years, despite good numbers.

So, it's a matter of time before Mr Market stops playing the music for the Sensex.

Or Indian markets catch a cold with the US or China sneezing.

Am I contradicting myself by saying this? Absolutely not!

My views on Sensex 100,000 remain as firm as ever. There is absolutely no doubt about the direction in which Indian stocks are headed over the next decade. And there is no doubt that the earnings recovery will come sooner than later.

But market movements are never linear. And it is unrealistic to expect the markets to turn a blind eye to earnings performance for long.

So, between now and Sensex 100,000, the party may stop for a while or two.

It'll be dangerous to dance until the Sensex music keeps playing. It'll be dangerous to get carried away by the market euphoria and buy stocks not backed by solid earnings.

Even as I keep my eyes peeled for Sensex 100,000 stocks, I am not ignoring the near-term risks in the market. Nor should you.

This may not be as bad as 2008.

But remember... big money is made over the long term, not by making more in the good years but by losing less in the bad years.

Chart of the Day

The public-sector entities, which were largely left out from the market rally in 2017, have once again caught investor fancy. Stocks are riding high on the hopes of the government pumping money into infrastructure projects.

PSUs with monopolistic share are in the limelight for the possibility of winning big orders. And the prospect of the government privatizing some PSUs has got even the foreign investors interested in them.

Little wonder that PSU majors have been the market darlings ever since the exit poll results were announced.

Recent Gains in PSU Heavyweights Here to Stay?

Warm regards,


Tanushree Banerjee
Editor and Research Analyst, The 5 Minute WrapUp

PS: Dear reader, Tanushree believes this is the time to buy the best 7 stocks in the market before they run up. Read more about these 7 stocks here...