A few weeks back, the India story looked like a lost cause to followers of the top-down school of investing. In an amazing turnaround, the government has managed to pull things back. And how? When sweeping change is required, speed is the essence. Only when the pace is right, the momentum will sustain and the direction of the process will be irreversible. The pace of the government is putting the reform agenda to work has been near perfect. There are still enough people around to play doubting Thomas. Until they are active, the markets will probably stay firm with a few small corrections thrown in. For the moment, the bulls clearly have it.
Most investors want to do today what they should have done yesterday.
Supply is an important factor in the making of every Bull Run. In the absence of adequate supply of fresh paper, markets tend to rise faster. On the contrary, a strong supply pipeline of fresh paper will ensure that the markets don’t run away. Even when markets do run away, it is the supply which breaks the back of every Bull Run. Every pull back in the markets happen on the back of strong supply of fresh paper. The present rally seems to be premeditated to facilitate smooth absorption of strong supply. This essentially means that the markets seem be played up only to sell. Whether the powers that be will be successful remains to be tested. But the intent seems very clear.
The markets are racing against fundamentals. Let the fundamentals guide your market actions.