The current scenario of the market is such that it would make one comfortable with the situation- every one is happy, and every one is winning (i'm talking about the bulls here!). And from here again, two things are possible. The bulls may beat the bears in a protracted breakout, or otherwise, the bears may maul the bulls in a much awaited correction. But the general sense is that with a lot of FII money having flown in in the last week, the bulls are going to have a larger say in the market. Have a look at the inflows: (data from Bseindia.com)
| (Rs. crore) | ||||||
| FII | DII | |||||
| Trade Date | Buy | Sales | Net | Buy | Sales | Net |
| 18/9/09 | 4,155.40 | 2,669.32 | 1,486.08 | 1,213.82 | 1,719.20 | -505.38 |
| 17/9/09 | 6,122.95 | 3,363.49 | 2,759.46 | 1,820.48 | 1,634.24 | 186.24 |
| 16/9/09 | 3,631.16 | 2,525.52 | 1,105.64 | 1,723.46 | 1,580.01 | 143.45 |
| Sep, 09 | 41,795.68 | 34,567.12 | 7,228.56 | 20,005.15 | 19,058.66 | 946.49 |
| Since 1/1/09 * | 402,325.45 | 389,557.21 | 12,768.24 | 215,326.89 | 191,363.46 | 23,963.43 |
The volumes in the cash market have risen, and the current sentiment makes one do wishful thinking about the highs of 2007 and the 21000 on the Sensex.
The current movement in the market is characteristic. This has happened a lot of times, but I remember it happening twice, as significant events took place then. First, the great bull run. If you're a bull, you're going to like this! There are downsides in individual stocks- on bad news, and profit booking, but these downsides are masked by upward moves in the other stocks. In the general sense, the increase in the premiums mask the increase in the discounts- over the broader market. Operators seem to have stepped in in most of those smallcaps where one would see potential, but that would, of course be- a mistake. Of course, those stocks would be launched to levels of 5x or even 10x, or God knows where, but they would not create wealth. A hint of bad news, or sentiment, or when the operators' job would be done, and the stock price would come tumbling down. Punters would die, and the investors- the real ones would survive. Darwin's law stays here as well, but we have to modify it a bit. Survival of the rational. That drives me to the second event when we saw such movement in the markets, albeit on the downside. When markets rose to unimaginable levels in Jan '08, there were similar movements in stocks. People were not booking profits, and were under the impression that they were creating wealth. When the bubble burst, their wealth disappeared, and we know the cause and effects.
This time, you would think, you are smarter. You would think that you're mature. But when greed takes over, you lose your rationality.
My personal opinion is that one should not start looking for the stocks labeled as multibaggers/penny stocks/rocket stocks/tips and the like. Stick to the basics, stick to good companies and you'll have good returns in the longer term. I remember talking to a person who booked profit in L&T when it was at the levels of 300 rs/a share some years ago. The company then gave bonus shares twice, and is now at 1600+. The person had booked profit in the company at that level and reinvested the money elsewhere. If he had kept that money there, in L&T, (he knew the company had a lot of potential- given the large infrastructure plans of the country) he would have been a crorepati now. But that also doesn't mean that history would repeat. L&T can die in a year (I don't like the sound of this), and the world may end (I don't like the sound of this either!). The point is, invest in a good company if you're a long term investor, and if you are a short termer, know when to get out, and get out then. Love the cash, don't love the share.
You should know what your company is doing, and know the risks involved in the business- and if possible, the risks that your company is taking. Develop that risk appetite, while being rational. If something can go wrong, it probably will go wrong.
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