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Markets: Of liquidity, and madness

Oct 10, 2007

You should have seen the smile on the anchor's face on a leading business news channel when the BSE-Sensex crossed the 18,000 mark yesterday. People who looked the grimmest when the markets crashed recently were found screaming that the "great Indian bull market remains alive and kicking" and that "there is no looking back now" and were raising the toast to FIIs who bring in all those P-Note funds, the origin of which we are not sure of! People who believed that what happened in Delhi's power corridors impacted sentiment on Mumbai's Dalal Street claimed that the "markets have divorced from political uncertainty to a large extent."So, are we going to 20,000 next on the Sensex, the figure that is mathematically less than 10% away? Considering the madness and liquidity, maybe! Considering the rush to buy those top 5-6 stocks that have contributed to nearly 60% of the latest rally, maybe! Considering that the US Federal Reserve might be lenient enough to cut interest rates further and thus lower the cost of borrowings for making emerging market investments, maybe!

Stock market history suggests that the actions of those who control the vast bulk of investments (institutional investors) guide the overall belief of where the markets are headed in the future - up or down. You do not know what they are up to. Neither do you know what Mr. Market has under his sleeves. In that case, the only choice we have is to guard ourselves if 'all hell were to break loose'! And the mantra is - Whatever Mr. Marketdoes today, we need not follow suit.

Coming back to the current times, with the September quarter result season already underway, expectations have built up for them to be 'good' considering that there have been no real hiccups in economic growth numbers in the recent past and that the advance tax numbers have been pretty decent. The 'expectations' game will continue to lead the way stocks behave in the short to medium term.

What you, as an investor, can do is take this market volatility as a way to build a long-term portfolio of solid companies with credible managements. Try not following a herd mentality into buying anything that others are 'relying' on. Rather make your choice by way of doing your own groundwork, follow the same with conviction and discipline, and leave aside greed and fear. There is probably no other way of generating wealth from stock market investing. In the meanwhile, we shall continue to wonder if we are getting too arrogant about the sustainability of the 'India story'!

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