How the pendulum has swung. In August it was all fear, now it’s all greed. The transition to greed from fear is a powerful one. So powerful that it shows up on the trading screen in one big momentum outburst.
August was a month of demons: US recession, sub prime, early elections et al. Now, there’s a rainbow in September after the August downpour. Money is easy again, the mood is back and investors are scrambling out of their shells to buy stocks again. Stocks, which seemed the worst thing to buy just a month back. Now, the race is on.
The euphoria that follows skepticism is of a particularly strong blend. The feeling of having been left out or having called it wrong takes over completely. Caution is thrown out with a vengeance, the classic recipe for creation of excesses. In such a scenario, it’s not prudent to try and predict where the ride can take us. After all, we are not in la la land like we were during the tech boom. A 10 per cent swing up or down won’t make us outlandishly or unjustifiably expensive or cheap. Sure, PE multiples are about growth and earnings, but they are also about mood and money. When the mood is bad 16 PE looks very expensive, when it’s good 18 is perfectly okay.
Just met a few bright guys from Wall Street. They say this whole emerging markets fancy is just catching on. The big moneybags are still fairly under-invested in markets like India. By the time they all catch on and buy in, our markets will reach a complete mania. It will happen. It happens with most asset classes.
First, the initial interest tinged with disbelief and concern over valuations. Then the madness creeps in, by which time prices don’t matter. Only ownership does. We aren’t even halfway there yet. So this journey isn’t going to end at 16,000 or 17,000, these are just trailers, the big film is yet to play out. Keep watching, there are twists and turns in the plot, but the finale, whenever it happens, is likely to blow our socks away.
(The writer is Executive Editor, CNBC-TV 18)