The market has surprised equity Strategists again. The sustained rally in both global and Indian stocks is the reason. It was generally expected that the rally would lose momentum and selling would resume. But, the rally has regained strength and spread into the most unexpected places.

Domestic markets are seeing buying in small caps, mid caps, defence stocks, and financials. Investors seem to be in a mood to chase the market mood wherever it goes. Liquidity continues to drive sentiment. Foreign investors are investing in the most unexpected places. When the focus of large investors shifts into unexpected places, it is a matter of time before retail interest dovetails behind them. The coming weeks will see how far retail interest shifts and whether it sustains the changing preference seen in the broader market trends.

The shift in preference towards newer stocks, themes and trends has created immense curiosity among the naysayers in these stocks. While believers in these stocks are trusting the undervaluation in them to be the driver of stock prices, the naysayers are looking for a reversal in the trend.

When value stocks get attention from the market, they tend to move very quickly. Their rapid rise creates market interest, attracting more investors. Rising prices are seen as validation of the idea, and the markets start looking for more virtues in the stock. Then, investors who don’t own the stock start experiencing FOMO (fear of missing out). More people start buying the stock driven by the anxiety to participate in it. As the stock prices rise, the buying interest spikes swiftly and investors chase the stock as prices rise. Nobody wants to be left out and everybody is looking at what others are doing. The markets are seeing this trend playing out. The rally must be closely watched and its strength must be tracked.

It remains to be seen how far the trend will sustain and how the trend spreads into more stocks. Investors must be watchful and avoid going too far into the wrong stock purely by tracking price trends.

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