The Bull Run

The bulls have climbed the graphs so high, that we need a telescope to look at them. Or so feels everyone observing the markets reach new heights every day. Compared to a bear market, this bullish run is a good problem to have but nevertheless, a problem.

For the cautious, this daily relentless surge causes anxiety as one is really not able to put a finger on the real reason for this euphoria. Everyday a jump over 200 points is good. But too much of everything, even the good can be harmful. This isn’t a pessimistic view, but just a cautious look at the reason for markets’ happiness.

The reasons for markets being so excited majorly is the lowering inflation. With WPI inflation was observed at a record low at 0.9%. Retail inflation cooled off to a historic low of 1.54% for the past three months. CPI has been low consistently. This led the market to think that RBI may cut the rates in the next policy review meeting scheduled in August. But this seems highly unlikely, as the RBI might want to wait and watch the impact of GST on the markets and might only reduce the rates once it is sure that the low interest rates would be sustainable.

The stock markets are considered to be the barometers of the economy. But how reliable they really are? Is a million dollar question. Along with the CPI, the IIP at 1.7% clearly showed that the economy was slowing down. There is a desperate need for new investment, especially from the private sector to come in. Consumption is on the decline and this is what we can see in CPI and IIP. But the markets have completely ignored the interconnection, and were only focusing on the CPI. Barometer? Well the readings seem pretty illusionistic.

Unlike every time, FIIS were not the ones who were fueling the Bull Run. In fact, they were the net sellers majorly during the first week of this July. In the last month, they were net buyers to the tune of 54,000 Crores, which clearly indicates that FIIs are booking profits as they invest. And it makes perfect sense for them to do so.

What we are seeing today is growth of selective stocks, a non inclusive growth creating major inequalities. The current upward rally can only be due to expected improvement in growth but somehow this fact is hard to digest. It kind of appears to be manipulated, rather than being led by improvement in key economic indicators.

And the conclusion as always is that the benefit lies in sticking to the basics and investing in quality stocks, rather than trying to ride the tides caused by the eclipses of FIIs, Indices, and the Indicators.

Have a happy bull ride.

Cheers!