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Market Watch: Speed of light

The Sensex rally from 18,000 to 19, 000 mark in four days sounds like a speedometer claim, writes Udayan Mukherjee.

india Updated: Oct 15, 2007 20:27 IST

From 18 to 19 in four days flat; sounds like a speedometer claim, does it not? The market continues to take our breath away.

The number of people standing by the sidelines, shaking their heads, grows with every passing day. Sure, at some point, a correction will come, but just now there is no potent enough trigger that can slam the brakes on.

The clouds that seemed threatening earlier in the year seem to have dissipated. The global situation seems much better with the Fed starting to cut rates and even the sub-prime crisis seems more manageable.

Local Interest rates may take a while to come down, but the general expectation is that the rate cycle has peaked. Even politics, which seemed like a potential corrective trigger, has eased off in the last few days. There is truly no immediate external trigger to drive us lower.

The risk is the pace of the rise and, maybe, higher valuations. The history of the market suggests that valuations in themselves, unless extremely excessive, rarely trigger sharp sell-offs. Particularly so in benign liquidity conditions. When markets run up too quickly they sometimes correct or pause to let fundamentals catch up but, again, rarely sell off more than 10-12 per cent.

Of course, an external trigger can manifest itself without anyone being able to see it coming. That is a given. Global volatility has gone down to historic lows and it is entirely possible that another trigger is lurking somewhere, but it is not apparent today.

So the “make hay while the sun shines” syndrome seems to be playing out. There is a lot of money, appetite for risk, absence of near-term negatives and a seasonally good patch ahead. All the makings of a party. In such conditions, it does not pay to be too conservative and miss out. As so many people seem to have, already. In bull markets, the surprises happen on the upside. That is a good working premise.

(The writer is Executive Editor, CNBC-TV 18)