The response for my post yesterday (This summer don’t go nowhere) is overwhelming; though not fully surprising.
Most investors have concurred with my view that Indian equities may be on the cusp of a multiyear structural upcycle. Many of them therefore see no point in waiting for a 5-6% correction and would like to invest more in the current market.
There are some, who agree that given the rising uncertainties in the global markets it is more likely that volatility increases materially. It is therefore prudent to wait for the storm to pass. The consensus within this group appears that if we are looking at a secular bull market for 4-5 years, benchmark indices could match or even exceed their best returns of 2003-2007 (~40% CAGR). Waiting for 3-4months may not hurt much. The wait may actually allow time for deeper analysis and a better opportunity.
Most traders disagreed with my view that the risk reward for trading at this point in time may be adverse. They feel that there is a strong momentum on the upside and traders have a decent chance to gain by flowing with the current. They are mostly betting on a further 5-7% rally in Nifty, that would take it to new highs.
Only a small proportion of traders agree with my view that the Nifty50 may top out in the 18450 +/- 150 range and correct all the way back to 17170-17250 range. Hence, the risk reward in the current market is adverse. Only three (out of 60 odd) respondents believe that a global credit is more likely than not and this could cause a much deeper (albeit temporary) dip in the Indian markets, presenting a once in three year buying opportunity.
Obviously, presently greed is the dominant sentiment in our markets and most participants are willing to ignore the global conditions as “mostly irrelevant” to our markets. Playing ostrich, they would like to turn a blind eye to the strong evidence of markets always reacting in tandem with the major global markets in cases of crises; even if the depth and duration of correction may not be the same.
The most interesting reaction that I got from readers was however beyond the “buy or sell” predicament. This relates to the confidence of market participants. Almost all respondents strongly believe in the decoupling of India from the western developed economies. They believe that India shall grow faster and stronger in next 8-10 years, notwithstanding the slowing growth in the developed world.
The most alarming part was that most of them were conspicuous in their desire to see a deeper recession in the US and Europe. They strongly believe that a deeper recession in US and Europe will accelerate the process of power shift to Asia, benefitting India and China. Besides decoupling, they appear to be fully supporting the theories of deglobalization and de-dollarization.
These latest interactions with the market participants have made me believe that the market may not only be running ahead of fundamentals, but also becoming overconfident. A trader taking a leveraged long position on the premise of a deeper US recession and decline of USD’s supremacy cannot end well; though I sincerely wish this time all assumptions of traders come true. Amen!
I would like to interact with many more market participants to enlarge my sample size and do a deeper analysis over next couple of weeks. I will be happy to receive more views and opinions from the readers of this post.
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