"If the Confederacy
fails, there should be written on its tombstone: Died of a Theory."
—Jefferson Davis (American,
2909-1889)
Word for the day
Disneyfy (v)
To create or alter in a
simplified, sentimentalized, or contrived form or manner.
Malice towards none
Nothing comes out of
nothing, and nothing ever could.
First random thought this morning
A visit to a summer cricket coaching camp in south west Delhi was
encouraging and shocking.
Encouraging because 60odd children aged between 12-17, all attired
in proper white cricketing gears were slogging in 42°C temperature. Some
parents were also waiting on the sidelines. Most of these aspiring cricketers
were from lower middle families. Their parents could hardly afford the cost of
proper gears and coaching fee.
Speaking to some of these children, it was discovered that playing
IPL and make tons of money, is latest dream career for many children these
days. The shocking part was that none of these appeared to have a Plan B in
place.
Greed still dominating the market sentiments
Historically, one of the most successful, though intuitive
indicator of the greed dominating the fear in market is outperformance of small
cap stocks over large cap stocks. The outperformance peak often marks the peak
of a market cycle. Subsequent correction in the outperformance of broader
markets coincides with the bottoming process.
A strong cycle bottom is formed when the fear begins to dominate
and benchmark indices begin to outperform the broader markets materially.
In past, an outperformance level of 25-35%, in a given period has
marked the cycle peak for the market. The correction thereafter have been
sharp, painful and very broad based. In one year post peaking, the broader
market corrected much more sharply as compared the benchmark indices.
In last instance (2006-2009), the outperformance peaked in January
2008 and broader markets corrected sharply thereafter.
During July 2006 and January 2008, BSE Sensex gained 106%, while
BSE Small Cap (187%) and BSE Midcap (150%) sharply outperformed the Sensex. IN
Next one year till the market cycle bottomed in March 2009, Sensex had lost 18%
(from July 2006 level), while Small Cap (41%) and Midcap (36%) lost much more
than the Sensex.
On that parameter, the current market cycle might have peaked in
January 2018. In the Cycle that began from august 2013, Sensex gained 98%,
while Small cap 267% and Midcap 233% sharply outperformed. That outperformance
has corrected somewhat in past 5 months. However, it may still be far away from
the likely market bottom, that could be reached by March 2019.
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There is an argument that the market cycle that began in August 2013 had already ended in February 2016. And the current market cycle is a new one.
I personally do not agree with this viewpoint, as none of my
parameters for market bottoming were satisfied in February 2016.
Nonetheless, even if we consider the cycle that started in August
2013, to have completed in February 2016, still the broader market
outperformance is material. The market cycle therefore may not be anywhere
close to the likely bottom.
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