The coming weeks promise to be interesting. During recent months, domestic investors have put behind almost every market setback and resumed buying equities. Domestic liquidity has absorbed any selling by FIIs. Traders have also remained supremely confident on equities and we are entering December with the highest level of confidence.

Leverage is at an all-time high. We have seen most market favourite stocks regain price losses effortlessly and go on to make some new highs. Nothing seems to bother domestic sentiment. The Gujarat polls also seem to have been factored into valuations. We see investor confidence quickly absorb bad news and move on.
This is no ordinary scenario. Rarely have markets shown such gumption. December which is usually a nervous month, hardly looks threatening. There seems to be all-round domestic consensus on almost everything. Such a setting is usually perfect for an unexpected event.
The Gujarat poll seems to have raised expectations of a decisive win for the ruling party. Clearly, the market seems to be too sure. This sense of assumed certainty is usually a lose-lose situation. A win, as expected, for the ruling party will probably be already factored into the markets. This makes a decisive market rally very improbable. On the contrary, a shock loss is not something the markets are ready to quickly absorb and discount.
With fundamentals not supporting present valuations, too much is prefaced on liquidity and flows. Now, that is what we can call the perfect setting for a surprise market move.
December has been a month never found wanting for surprises. This December may not disappoint.
“All bubbles start with some nugget of truth.” – Howard Marks

Recent Posts