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| The accidental bull market |
| N Sundaresha Subramanian / Mumbai Feb 21, 2012, 00:41 IST |
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I almost missed it. It was tucked into the top corner of the kitchen shelf. It caught my eye when I was pacing inside my pigeon hole as water, which stays ice-cold even at 10 am these days, was getting heated. I must have seen it often in the past, but, almost by instinct, I pulled it out this time.
It was a sheet containing four pages of a business daily. The date was December 19, 2011. The pages, which happened to be the ones that covered markets, were full of forward looking stories, but looked largely influenced by the preceding gloom.
There was a story talking about how the Nifty had broken down a crucial support at 4,700, closing at 4,651, and was headed towards 3,700.
A chartist said in his column the market was likely to bottom in three-four months. In hindsight, he was practically sitting at the bottom.
The least bearish voice was that of a mutual fund manager, a vegetarian tribe which hates blood on trading floor. In an interview, he said there was no case for further correction. However, even he did not predict the spike that was to follow. His most bullish statement was that the market would be range-bound. There were other stories predicting the rupee rising to the 56-levels, advising people to invest in long term bonds and so on.
Since the day that paper was published, the benchmark index has gained over 20 per cent, enough for vested interests to declare a bull market. At 5,500 plus, Nifty is at least 50 per cent more than where it was predicted to go. Some infrastructure laggards have doubled. One of them has even trebled.
While this clearly shows the futility of daily/real time predictions by analysts and journalists, including yours truly, at another level, it casts aspersions on the chastity of this rally itself.
Like my pulling out that sheet of paper, the rally seems accidental and lacks conviction. A step further, it seems unreal defying all fundamentals. The economy is dragging, oil is boiling, inflation is high and Manmohan Singh is still our Prime Minister. Most level-headed people are not too comfortable. “A 6.5 per cent GDP growth is clearly not enough to inspire and sustain a bull market,” said a senior strategist with a local brokerage.
Such a liquidity-fuelled euphoria in the run up to a large Initial Public Offering (IPO) is another red flag to my mind. There have been several instances of such rallies culminating in painful crashes in the past. And, in the middle of many of those was a much-awaited IPO.
The only firm which has clearly called a bull market is owned by a company which also owns the investment bank running the book for the IPO. We all know there are Chinese walls. But, we also know they come with Indian windows.
So, what to do now? Going by the above experience, read the papers today, watch the TV shows, but do the exact opposite. However, remember that past performance is no indication of the future.
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