Record Sensex, Nifty: Waiting for that elusive correction

Record Sensex, Nifty: Waiting for that elusive correction




Waiting for that big correction to enter the market? Chances are that you may have to wait longer, because there are too many people praying for the same thing. And anecdotal evidence shows that next to liquidity, skepticism and caution are the two big drivers of a bull market.

Money has resumed flowing through mutual funds, but retail investors still seem to be wary about committing money into equities in a big way. At least the types who directly invest in shares instead of equity mutual funds. You are still not hearing stocks being discussed in trains and at social functions, unless you happen to be from the stock market community. Nobody is yet bragging about having made a fortune from that stock he bought two months back.
High net worth individuals are a bit more active, but that’s not saying much. It is still a market for institutional investors for the moment. But even institutional investors will need an exit at some point. That is why retail participation becomes important, never mind other lofty causes like cheap domestic capital helping Indian entrepreneurs.
Still, if you look around, there are signs that retail investors are itching to take the plunge. Some of my acquaintances in the broking and trader circles say they are getting enquiries from relatives if this is a good time to be putting money in the market. I too had one such experience. My school friend Vinod called me up the other day requesting that he put me in touch with a broker, but one who is willing to take orders for stocks quoting at less than Rs 10.
“I have been studying the market for the last two months, and I get a feeling that I will be able to make decent money through trading,” he told me, adding, “but I want to start with low-priced stocks before taking bigger bets.”
Going purely by fundamentals, there are no strong triggers to take the market much higher from here in the near term. The economic recovery so far has been patchy and erratic, and corporate earnings trend shows that demand is sluggish even if companies are expanding their bottomlines through cost savings and operating efficiencies.
Falling crude price seem to be the most compelling argument in favour of the bull market. Already, economists are penciling in a steeper-than-expected fall in inflation, and hopes of a rate cut in February are on the rise.
But will the rate cut be a good enough trigger to spur the corporate investment cycle? Mint columnist V. Anantha Nageswaran made an interesting point in his column earlier this week.
“More than interest rates, stretched balance sheets of banks and corporations hold back a revival in domestic investment. Government has to nurse the banking system to health quickly and Indian corporations should do their part with their balance sheets,” he wrote.
There are enough factors—local and global—why the Indian market has to correct. But I get a feeling that it is investors like Vinod and the excited relatives of my broker and trader contacts who hold the key to the next leg of this rally. And I am betting that they will take the plunge and take the market to a new high.