ithought market wrap No. 48, 21 Oct 2011

Quick edit:
Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on Euphoria. So, where are we now? Let us think this through to an answer. Pessimism is not a routine monthly or quarterly phenomenon. The extreme negativity due to the financial woes of banks and Nations across Europe was a phase of pessimism. As Europe concertedly moves towards resolution, the markets are now focusing on the banks. Surely, the problem has got downgraded in its intensity and the mood is more skeptic than pessimistic. Sentiment should possibly stay skeptic for a while before markets turn optimistic. Markets will not give us time to buy then and we should be buying gradually rather than be passive now. What if pessimism returns? While we believe it may not, we look forward to investing feverishly if it does. The market mood should guide the pace of your buying. But, waiting is not the right thing to do.

Impact:
The week saw the biggies like RIL, TCS and L&T come out with their numbers. While the reported numbers of RIL and L&T broadly met expectations, the forward looking statements were weak and definitely negative. The weak forward guidance kept prices down and this factor kept the indices on a tight leash. The upcoming results are also not likely to give the markets much reason to cheer as all expectations are factored in the stock prices. More results will get discounted in the coming week and the Muhurat trading session will take place in the middle of this results season. The muhurat which is usually a day of positive sentiment will be keenly watched by sentimental investors. In 2008, the pre muhurat day saw a bloodbath and the traders had a shaken muhurat. The coming week may well set the overall market direction and one could expect more volatility in the week’s trades.

 

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