Peeping over the wall

Jayant Pai | jayant@ppfas.com
The recent rally in the indices has resulted in some predictable reactions:

Disbelief: During the last month of 2011 in the customary media surveys on the investment outlook for 2012, most “market experts” – both domestic and foreign – were unanimous that the unholy trinity of high inflation, global crises and faltering growth would result in the Indian indices slipping further. Paradoxically, the only person who was publicly bullish is one who is usually denounced as a “perma-bear”.

The subsequent rally (currently going strong despite a 15% bump-up from the recent low) is being viewed with disbelief by these very experts. They are now searching for reasons why the rally transpired (ranging from short-covering to the Reserve Bank of India’s intervention in the currency markets).
While I am no proponent of market timing, strongly believing that it is impossible to time successful entry and exits consistently, I wonder why these experts who profess to do so, do not have the courage to publicly admit that they were wrong. In private they must surely be kicking themselves for not seeing it coming.

Scepticism: Experts are adamant that the rally is a mere flash in the pan, citing the same hackneyed reasons as justification for this view. However, markets always factor in changes at the margin. Hence any perceived improvement in the scenario (in this case receding inflation and a strengthening rupee) is enough to trigger a rally even if the overall picture is still bleak.

Retail apathy: The “small investor”, who looks to the experts for guidance, is looking askance at this rally. In fact many do not have much gunpowder left as they have recently sought refuge from the ravages of the stockmarket by stuffing their portfolios in “safe havens” such as tax free bonds and gold funds.

No one knows how long this rally will last. But one thing is certain…The more the number of sceptics the more durable it will be. Markets often try to climb walls of worry and like small children, after several failed attempts they finally succeed in clambering over. We may be on the verge of such a successful attempt. Of course, as I am no “expert” I will not venture to guess whether this is “The moment” or not. However, I will also not rely on others’ guesses too….

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