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Commentary

The Rally No One Wants To Believe

In the midst of an incredible upmove, the Nifty is at 6110 and is nearly at an all time high (6300+ is the highest). Everyone I know seems to be surprised by the direction. The Nifty is climbing a wall of worry. The standard reasons are all negative, or so it seems:

  • IIP data on Friday was bad, showing a slowdown.
  • PMI data earlier this month was bad, and way under 50.
  • Inflation data today – at 6.46% indicates a rate hike, and while yields have gone up, stock markets have stayed up as well.
  • The US impasse over the debt limit and shutdown continues into its 14th day, but no one is worried – the idea is that they will figure it out. Markets, especially Indian ones, aren’t worried.
  • Foreign flows continue outward in October.
  • Liquidity is tight with over 42,000 cr. in MSF + 19,000 cr. in 7 day repo borrowing.

When markets climb despite bad data, it means that even if one of these points changes for the good, markets will soar. You don’t fight euphoria of this sort, but you stay aware that this is a sentiment driven rally and sentiment is a beast not well understood.

It’s when the last disbeliever becomes a diehard bull that rallies end. But is this one of those? Or are we just running on steam in a low liquidity market?

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