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Madness of crowds - Views on News from Equitymaster
 
 
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  • Jun 1, 2002

    Madness of crowds

    It was another downer -- third in a row. After the sharp spurt on Friday before last and optimistic expectations for the week ended, markets continued to head lower with no improvement in outlook for the coming week. War talk by not so friendly neighbour has got investors' at the edge of their seats.

    We had mentioned that it seems India is making the only efforts to reduce domestic and international concerns on the Indo-Pak border skirmish. Across the border, leave aside statements to improve the situation, it seems, the strategy is to keep border tensions alive. Aggressive statements from Pakistani officials have resulted in increased fears, especially amongst the international community. U.S and other countries have issued a travel warning statement and are evacuating non-essential staff. While ground realities might not warrant such a move, in times of uncertainty, it is better to adopt a more precautionary stand. Nevertheless, the steps are likely to further unnerve investors'.

    Pakistan is going in for a general election in October '02. The statements could be to build-up popular support for the President, which could put pressure on the legislative wing to accept the executive head. On the other hand, India's move to keep away the border flare-up from cynosure of international community and possibly build up pressure on LoC, could be compelling Pakistan to keep international attention alive, which could act as an insurance against any aggressive stand by India. The current Government is known for their strong stand on the issue and may not like to back down without any tangible gains. Having said that, India is not viewed as the aggressor and it's diplomatic stand -- not making irresponsible statements is resulting in international pressure on Pakistan, which could lead to the tangible gains. Therefore, as long as the current strategy seems successful, wider scale military action may not be on the cards.

    Consensus -- at least in discussions -- seems to be that with war fears, it is a good time to enter equities. Interestingly, our 'Market Driver' poll seems to suggest more investors' are bullish, though the spread has reduced sizably over the week, than bearish. However, markets continue to head lower. Investing, more than discipline (fundamentals), seems to be guided by the madness of crowds. Only when thy neighbour invests will thou invest. It seems to be driven by lost investment opportunity panic. This has given rise to the contrarian stand that investment opportunity arises when all noise of optimism has been drained out.

    The Sensex has broken support at 3,150 levels. There is support at 2,950 to 3,000 levels. A weak U.S market, war rhetoric, preventive measures by international community all splashed on front pages of dailies' is likely to strengthen the bear camp. And when that happens -- as a contrarian -- one knows what to do.

     

     

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