Do it yourself

Over the weekend, I met a cross-section of market participants at a social gathering—veteran investors, traders, money managers, and brokers. If I had to summarise the overall mood in one word, it would be “befuddled.” There was a clear sense of cognitive dissonance in the room. People were wrestling with conflicting signals and contradictory beliefs. The discussions felt like watching multiple emotional currents collide beneath a calm surface. On one hand, there was frustration about personal portfolios lagging. On the other, there was comfort in seeing the benchmarks hold up well. Add to this the fear triggered by headlines predicting an imminent burst in the AI bubble; anxiety over rising Japanese bond yields and a weakening INR; excitement around a potential Indo-US trade deal; and hope that Indian equities may outperform if global markets slip into turmoil. Amid this emotional tug-of-war, a few broad positioning trends stood out: Active participants remain overweight in narrative-...

The first three weeks of the FY26 have been rather dramatic for the stock markets. By the end of FY25, the benchmark Nifty 50 was down ~10% from its previous high level recorded in September 2024. Foreign investors were selling persistently. News flow from any quarter was not particularly encouraging. Investors’ sentiment was sagging. Market volumes had plunged over 30% from their 2024 highs. The rate of SIP discontinuation had increased materially, with March 2025 recording net negative addition to operative SIPs. Social media timelines of active market participants were filled with despondency. FY26 started with the declaration of trade war by the US. Markets that were already reeling under pressure plunged further, with the benchmark Nifty 50 falling another 9% in the first five trading sessions of FY26. Anecdotal evidence suggests that many traders and small investors capitulated and liquidated their positions. Several others churned their portfolios to move to defensive sectors li...

“Courage is the strength in the face of danger, pain or grief, while stupidity refers to behavior that shows lack of good sense or judgement.” From recent interactions with the market participants, I conclude that the recent ~8% rally in the benchmark Nifty50 has materially obliterated the fear of major correction in stock prices from their minds. Of course, most of them are conscious of the factors like financial sector crisis in the developed markets, especially the US; recession like conditions in some of the major global economies; and high real rates impeding the global growth that may have serious repercussions for the Indian economy and businesses. They also seem to be mostly ignoring the unusual weather conditions and possibility of a serious slowdown in exports, and acceleration in FPI outflows if the credit conditions continue to tighten further in the developed economies. It may be pertinent to note that banks in the US are tightening credit in response to fed rate hikes...

If you can look into the seeds of time, And say which grain will grow, and which will not, Speak. (Shakespeare, Banquo -Scene III, Act I, Macbeth) The past three years have seen an intense war between the forces of “Greed” and “Fear” in the financial markets. Both the forces have won some battles and lost some. Though the benchmark indices close to their all-time high levels might give an illusion of decisive victory of for the forces of “Greed”; but the negative market breadth, poor volumes, declining participation of the domestic institutions, net selling by the foreign institutions and underperformance of the broader markets in the past one year indicate that the forces of “Fear” have not yielded much ground. The period 2020-2023 has seen some localized bubbles in the markets, e.g., new age businesses (ecommerce, digital payments, gaming etc.), healthcare (Covid spending) and metals (supply shortages); which have been duly normalized without much damage to the overall market structu...

 In the past one week, I discussed the current situation in the Indian financial markets with some seasoned investors and experienced market participants. It was after almost three months that I got an opportunity to discuss the markets with such an enlightened group of people. Mood of markets definitely appears to have changed remarkably since June 2022. After my interaction with some senior market participants (bankers and investors) I had noted that the mood was rather despondent. The consensus in June appeared strongly in favor of a slow grind over the next 6-9months. The reference point of discussion was mostly the 2008 market crash. The market participants sounded cautious about rising cost of funds and drying liquidity; and feared major defaults that could trigger a global contagion. ( see here ). Reactions of the market participants this time were diametrically opposite. Most of them were in fact trying more to convince themselves about “all is well” rather than discuss...

The prices of publicly traded financial assets like equity shares and bonds etc., is materially influenced by the sentiments of fear and greed amongst the market participants, at least in the near term. The sentiment of greed drives the participants to bid higher prices for a security, even though the economic fundamentals underlying that security may not fully justify such price. Similarly, the sentiment of fear prompts the market participants to offer the securities held by them at relatively cheaper rates. The equilibrium of sentiments of greed and fear keeps the markets stable & healthy; whereas dominance of either sentiment induces excessive volatility and irrational pricing in the markets. Extreme dominance of either sentiment usually marks the peak or bottom (as the case may be) of a market cycle. If we examine the current equity market behaviour, it appears that the sentiment of fear is gradually becoming dominant amongst the market participants. The following five signs,...

In my April review of investment strategy, I had emphasized that "the current crisis is unprecedented in the sense that it has seriously impacted the liquidity, solvency and viability of a large number of businesses, all at the same time. The number of businesses going out of business before this crisis ends would therefore be much larger than the crises faced by global economy in past 75 years since the end of WWII. The only way out of this crisis is to inflate a colossal bubble in asset prices, which is equally unprecedented." ( for full strategy review note see here and the presentation of "the big call" could be seen here ) Incidentally, the global markets have been behaving mostly like I have been anticipating. The central bankers world over continue to inject billions of dollars in new liquidity almost every day. Consequently, the asset and commodity prices are racing to pre COVID-19 period, despite there being definite signs of recessions in...

In past 50 days of lockdown, I had a chance of interacting with numerous professionals, investors and businesspersons. The general environment is that of anxiety, fear and pessimism. The promise of a meaningful economic stimulus by the prime minister seems to have rekindled some hopes. Though greed usually accompanies hopes, as of this morning, the fear still continues to be the dominating factor in influencing the investment decisions. In my view, the following three are the primary sources of rising hopes: (a)    The prospects of total collapse in economic growth and consequent high stress in the financial system is prompting RBI for an aggressive monetary easing. Easing inflation and government’s resolve to bring back the economy on growth path is also helping the sentiments. (b)    There is abundant liquidity in the financial system. As of 6 May 2020, banks had deposited over Rs8.6trn in RBI's reverse repo window @3.75%. The banks have be...

In past few months, a large number of prominent market experts have publically stated that the present phase of market correction is perhaps the worst they have seen in their life time. Many of them have recently indicated that the Indian equity prices may be close to their bottom and a recovery is imminent. In view of these assertions by the prominent market personalities, I find it pertinent to examine, whether equity prices are close to hitting the rock (if not hit already). For me, the most successful, though intuitive indicator of market bottoming is the dominance of "fear" over "greed". The phenomenon is usually reflected by a combination of the following three factors: (a)    Sharp underperformance of broader markets as compared to the benchmark indices, for the current market cycle. (b)    Materially negative market breadth for the current market cycle, indicating capitulation of large number of non institutional investors. ...