A 650-point rally in two days may seem like a lot but it’s only India playing catch up with the rest of the world. In fact we are still under-performers, in a relative sense, so some more catching up may be in order if global markets remain stable.
Sentiment has improved visibly, there’s no better proof than the way mid-caps and small caps rallied. We are getting to that point though when investors will dismiss the fall as a one off running correction and conclude we are on our way to new highs. That is perhaps the point when one would need to be a bit careful.
It’s possible, even likely, that the market moves up some more in the near term. There is a healthy degree of skepticism, globally too, about some more scary bits unfolding from the sub prime saga, which is good. I just think we should give it another fortnight or so to be sure that the near-term trend is in place. We have just come out of a five-week spell of volatility and had a good week of recovery. This may or may not signal the end of the choppy spell.
As we approach 15,000 again, the margin of safety is a bit lower again, it certainly was easier to take buy calls on the panic dips to 13,800. However, the idea is not to be too pessimistic, as the first good bounce post a sharp correction is always viewed with skepticism. Sometimes these bounces lead on to greater things; yet given the environment it may be prudent to be a bit less aggressive from here on till it looks like the real thing.
Playing the waiting game has generally worked out as a strategy this summer. It’s had its twists and turns. At points it has looked like it is going to run away and never look back. But it has looked back and given you the dips to enter. It did that in February and has again in August.
The world is in a state of flux and in such an environment the dips will always come, as excesses unwind. One just needs to identify the right stocks, not chase runaway prices but wait patiently. As they say, the postman always rings twice.
(The writer is Executive Editor, CNBC-TV 18)