We have a saying that markets are ahead of fundamentals. Some people see it as markets know what’s ahead and take shape according to that. But in fact markets shape the fundamentals(and off course technicals –I don’t know how its technical as charts are drawings and drawing is an art and art is mostly creative imagination-irony ) in modern economy. AS A MOST IMPORTANT POINT I MUST REMIND – THIS WHOLE ECONOMIC SYSTEM IS A “MITHYA(HINDI)”- most of people don’t know this and those who know also deliberately disagree to it. And markets (mostly stock market) decides the fate of this whole world myth economy, it affects all even those who are neither investor nor a trader of this market. But I am not going to discuss how it is , but will discuss how to be with it and how to make money(absolutely money is a myth but let’s make max of it).
A small Example : XYZ company is in very bad position right now due to heavy debt and is under huge pressure as its not able to get further debts and due to market condition profits are minuscule compared to what they were when they borrowed. Suddenly “markets” get excited due to a “trigger” ; share prices of companies rise some big some small together with this xyz. Now this XYZ will have option to borrow more and since system has more money due to “market conditions” its profit will also rise . Soon they will be able to get money from public offers instead of debt. Old debts repaid . And this growth cycle will continue till the next doom. And by the next doom this XYZ will be much bigger than the earlier doom. And this cycle will continue forever ,maybe XYZ will be bust and replaced by ABC but the whole financial system will always be expanding as our galaxy till the final doomsday.
Now we come to our markets NSE and BSE ,as neither I will discuss those things in details as it will fill books nor you will be interested in that “shit”. Markets has “cycles” and every major market will have its turn . For Indian markets we have begun very late and so major cycles are yet to come. If anyone have correlative analysis (you can name it Elliot wave or something like that) they can see we are at base even if you start counting all the gains Sensex has from the day it started. And Cycle wise every cycle has given more no of times retun than the previous cycle and in the beginning of those cycles itself people see those returns so exorbitant that they can’t stay with it till the end and once they exit market goes such up they can’t re-enter waiting for that gap between their sell and cmp to become negative, 0 , or minimal ,, off course they can’t control their urge to enter again at top. I am not talking of micro-moves where p/l continues but the macro moves. The last cycle was 2002-2007 . Can’t write much because of me being typo-lazy but we are in the second cycle which has just started AND I WILL NOT BE SURPRISED IF INDEX RALLIES 80% FROM LOWS IN NOT MORE THAN 240 DAYS . What will happen to P/E and fundamentals ,, it will be “corrected” in the way of above example and what about economy –again it will correct itself upwards the same way till the time we enter an euphoric phase .
Now “will the rally last at 80% -absolutely no” it will start the rally which in the next leg will give 300-500% from there and then the final leg with 100% from there. So if I say NIFTY will be at xxx level 5 years down the line it will be a laughable target ,but it will and will be in 6 figures.
Now little micro-time frame wise and for traders : those who are feeling left out in the current run-up – no you are not left out in fact we have done nothing compared to what’s coming up – Board the bus enjoy the ride.