As tech stocks hit new highs and commodity prices spike upwards, domestic investors seem to be ignoring them for now. On the contrary, they continue to pour money into small and midcaps. Several stocks continue to be benign beneficiaries of mindless investing. The entire small and midcap boom was constructed on the bedrock of low commodity prices. The scarcity of good investable paper was another key factor that fueled the boom in small and midcaps. The power of habit is very visible in investing behaviour. But, the constant challenge of investing is to break the mechanical work ethic.

The coming months will see global commodity markets in an extremely volatile phase. As the commodity prices exert upward pressure, it could lead to operating leverage working favourably for commodity producers and higher input costs beginning to hurt user industries.

Our stock markets do not seem to be adequately factoring this. This result season will catalyse a fresh sequence of investment rotation. We will see money moved around as public investors struggle to get their own investment calculus right. Individual investors and advisors will also need to take fresh guard as India heads into a normal monsoon and election year which will also see a definitive revival of the economy. The reform engine of the government will now run in cruise mode and is unlikely to do much except play of course.
It is important for portfolios to capture the emerging economic recovery in their investment choices. Not getting the mix right can prove to be very costly. This results season will certainly trigger a market rethink.

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