The week saw a sustained rally in defensives. While pharma held steady, tech stocks showed tremendous strength. Towards the weekend, financials joined he party lending stability to the indices at higher level. The regular rotation of sectors, gradually rising valuation trend, and rising retail participation in the markets made for interesting trends.

Investors are heading to a point where economic performance and stock market performance are at their highest point of divergence. This probably is due to the extreme pessimism of March-April which is now looking distant. The rally from that bottom has left investors with even more confidence than they had In the pre-Covid phase.

The feeling is that there are no alternatives to equity, and within equity, quality growth stocks are the only choice. Given the compulsive behaviour arising from that belief, markets are likely to stay irrational in the near term. This will last until markets tire of the top performing themes or the rally loses its current momentum. For now, global market trends and domestic retail participation will continue to rule the roost.

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Posted on October 17, 2020

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