Nifty breached the lifetime high once again on
Friday, while the entire world waited with bated breath to listen to Jerome
Powell, the Chairman of the Federal reserve system speak at the Jackson Hole
Symposium. This symposium is an annual ritual hosted by the Federal Reserve of the
State of Kansas. This year’s symposium has attracted a lot of interest due to
the recent remarks of Powell about slowing down the Bond purchases in 2021. The
markets wanted to know more about it and were hoping that Mr. Powell would placate
the frayed nerves after his “Taper Tantrums”.
This reminds me of an old cliché about managing
the economy of releasing a balloon to gauge the direction of the wind. That’s
exactly what Mr. Powell did the last week, he simply released the balloon of
tapering the bond purchases to find out the opinion of the markets. In the
meanwhile, let us also be reminded of a more serious issue looking large over
the US Governments horizon, The government is nearly reaching the debt ceiling and
if the ceiling is not raised by the congress, we are looking at a government
shutdown much before the new year.
Now let’s get back to the Indian markets. Indian
stock markets have been on a dream run for the last year, they have been able to
digest all kinds of bad news and have kept on conquering new highs.
The Nifty closed at 16,705.20 trading at a PE
of 25.60. the Index has historically traded in the whereabouts of a PE of 25
and seems to be comfortably placed at these levels. It is also being said by most
retail investors that the index is poised for a correction. A correction occurs
when there is euphoria all around an when all and sundry want to trade in stock
markets. Interestingly, the pace of expansion and participation of retail investors
has quickened in the aftermath of the lockdowns during the pandemic. Ground reports
suggest that retail investors are rather interested in staying invested in
their favorite stocks and are in no mood to sell off a slightest provocation as
it used to happen earlier.
As a student of behavioral finance, I see that
there is a discerning democracy evident in the investor behavior during this
pandemic. This is aided by democratization of information and communication. The
adage of “It’s time to sell when your driver, autorickshaw wala, panwala, etc
get interested in the stock market” is on the way out. The new investor is an
IT Professional or a young graduate armed with a smartphone and unlimited
information on the click of the mouse or the tap of her fingers. This is not a
generation who would buy a stock just because it changed the name from a mining
company to an IT company and later to a biotech company (Déjà vu?). The new investor
is well read and well watched (YouTube), she can differentiate chaff from grain
and has her eye right on the RIGHT stocks. A cursory glimpse on the twitter
handles, telegram channels and WhatsApp chats tells us that the new investor is
not after penny stocks and spends enough time to pick good quality stocks. Of course
there are new age speculators, but they are also of a different breed, the demand
for YouTube videos about technical analysis has gone up manifold and newbies
are flocking this field to watch them.
These trends show that quality stocks find a
market for themselves in this milieu and those falling for penny stocks are the
same ones who fell for penny stocks in 1992, 1994, 1999 and 2008. This has
resulted in heavy demand for quality stocks and thus the stocks within the
universe of NSE200. It is just a case of too much good money chasing too little
good stocks. This is New India and the new Indian Bull run, it does not seem to
be stopping anywhere until 19000 on the Nifty. Only an adverse geopolitical event
or any natural calamity can stop this bull run.
