Stability and Continuity?

Markets love stability and continuity. The cabinet announcements from last weekend sent a positive signal to participants. The post-election fears have been allayed, as key portfolios remain with incumbents. The selective fresh faces add to political stability. On the macro front, the Fed and RBI acted according to the script prioritising inflation management.

Policy remains front and centre of market moves. Index-level returns have been flat while individual stocks and sectors react to announcements. The rally in infrastructure and cement stocks is a perfect example.

So, we’re back to business as usual in the markets. And there’s data for support. Investors bought into the market dip on election day. May numbers from AMFI show strong participation. The SIP book stands at almost 21,000 Crores, and investors added 34,700 Crores to equity funds last month. Safer spaces like debt are unappetizing.

Markets seem to have forgotten the most important lesson from last week: great expectations lead to great disappointment. The question that remains is how this relief rally will end. Will investors rise above, or will they get caught on the wrong side of the tide?

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