Are more surprises in store?

Quick edit:

The rupee @ 49.50 Vs. the dollar. NIFTY @ 5200. These would have been rubbished off as wishful thinking if one had dared to make a prediction on January 1, 2012. We actually had global strategists of foreign brokerages descend in Delhi and predict gloom and doom. Yet, that is exactly what we are staring at this weekend.

Investors were unsure of market direction at the beginning of the year and chose to stay out of equities when the markets actually bottomed out in the first week. Now, even after the markets have rallied smartly, investors still remain unsure of market direction. The obvious issue is the lack of conviction.

Investing without building conviction always leads one to a state of mind where he can’t make objective assessments. The investments made at the previous market peak are stopping investors from being objective at the market bottom. Investors may well end up sitting out of this entire rally. One only hopes they don’t jump in at the fag end of the rally.

Impact:

The continuous buying by FII’s has caught everyone by surprise. It has had a ripple effect on currency, sentiment, domestic fund behavior, liquidity and valuations. What next? Will FII’s turn sellers any time soon? Seasoned market watchers know that these trends normally don’t reverse in weeks unless there is a dramatic shift on the policy environment in India or overseas.

Significantly, the kind of money that has come in is more of long term money from players like Sovereign wealth funds. That leaves most people watching from the sidelines waiting for that elusive correction when FII’s would dump Indian stocks and run for the exit. Evidently, domestic investors are in prayer mode wishing that they get a buying window before markets head up further. The answers will be known in the coming weeks. Meanwhile the results season moves in to the end phase when the laggards report numbers.

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