Quick Edit: Global Investors seem to have been bitten by the Indian ETF (exchange traded funds which basically buy the Index) bug in 2012. The sustained liquidity from ETF’s will usually take all stock prices up in the index. The stocks with high index weightage will see steady demand and their prices will firm up more once liquidity in them dries up. The indices firming up strongly and the entire frontline moves. The focus will shift to the second rung and mid cap stocks. However, if the liquidity flows dry up, then selling pressure will return in the frontline and a correction will set in. This is the context within which our markets are placed now. We saw ETF flows. A rally happened. The coming week will tell if liquidity will sustain indices.
Impact: Most investors are usually too busy to review portfolios frequently. When the markets are down, we put our minds onto better things. There is little we can actually do about the lower valuations. When markets stay down for months together, the long durations tend to tire even the seasoned investors. A rally in the markets is the last thing on our minds. When it happens, we tend to respond in two ways. A section of the tired investors rush to the exit. By doing so, many of us tend to sell too early. A majority of investors simply let things be. We remain passive and wait. The right approach would be to strike the right balance. Review regularly. Identify non performers. Use the rally to switch from non-performers to better performers. A bull market will certainly see the portfolio thrive.
