The market bottomed just above 2800 last week and are we now headed up again' Looks like it, after a rally that was triggered by Reliance’s gas discovery. The negatives are temporarily pushed behind, “corporate performance is good” (as is the current chant) and it is a seasonally a good time to buy stocks — one of many myths that go around unchallenged in Dalal Street.
Tired of months and years of falling prices, marketmen are bravely calling the end of the bear market. Well, there are things like self-fulfilling prophecy and mob psychology and we may see these two factors in action soon. The best scenario — investors always look for the best scenario — is a rally that will last for months.
Months' Readers who have followed this column for the last 12 months would be startled by my sudden optimism. Well, I was merely verbalising the current popular mood. In a business paper on Saturday morning I spotted a broker saying we will see a 25 per cent-30 per cent upside. Of course, when has a broker ever predicted of a 25 per cent downside'
So, has the bear in me been de-clawed and adorned with horns' Not yet. We will see a rally this week I guess but have I neither the skills nor the desire to predict a 25 per cent upside.
Market movement over the medium term is unknowable and is influenced by a mix of changing moods and new information as these happen to unfold.
Anybody who can predict the flow of information and how the market would react to it, would be the world a first trillionaire. Haven’t we seen hundreds of rallies predicted in the business papers and CNBC this year, which inevitably failed' Based on last week’s market action, bullishness of a minor nature is building up. As of now, it is minor. After all we are barely at 2950.
If we take out 3040 in the next few days we have a chance of something bigger - 3100 and 3300. The economic conditions are not conducive to earnings growth — a factor that alone can keep stock prices up. What can change the market scenario are a couple of major macro changes. If privatisation is back on the agenda (unlikely) and if direct tax reforms of Vijay Kelkar that calls for sharp cuts in exise duty, are actually implemented (too early to tell), we could see a rally that lasts.
Till then, it would be a minor bounce that has to be played with caution. It is all sentiment without substance as yet. Besides, don’t forget the big sell overhang, US 64.