Post budget, everybody expected the markets to correct further. A week after the budget, most people are revisiting their market expectations. This is hardly surprising. Making and unmaking our expectations is a recurring exercise. Investor interest in equity seems to be sustaining, though most investors aren’t sure whether they must become overly bullish in the near term. When everybody expects a correction, it rarely happens. So, expectations can lead to waiting and that can be tiresome. This leads us to very different market behaviour.

When markets hold firm in uncertain times, they tend to build up further. The reasons are simple. Investors who wait out during uncertain times gradually grow impatient when nothing much happens. If the markets hold steady when we expect it to fall, at some stage we tend to gravitate towards buying. The markets seem to be returning towards buying. Liquidity is ample and the need to invest remains high. Interest rates will remain soft even while debt investing will remain challenging. Real estate is unlikely to do much in the near term and liquidity in that asset class is very poor. This leads us to rely more on equity to deploy our savings. Investors are increasingly gravitating toward equity.

The lack of alternatives and the quest for returns is driving money into equities. Flows are clearly the driver. What we now need is incremental evidence of economic recovery, sustainable reforms, and consistent foreign direct investment. If we get evidence of these three, we should see markets staying a bit ahead of the economy. A smart investor needs to stay ahead of the market to create superior investment performance.

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