Mr. Market Thou Shall not fall!

>> Monday, May 25, 2009

I think this is the 'jittery optimism' with which we start this week. Since May 18th on which we saw a historic 17% move in the markets, the collective belief of the investors has been upbeat and positive for the better future prospects of the stock markets.


The enthusiasm received further fuel on market close friday (May 22nd)

when Indian markets dodged a regional slide in Asia-Pacific markets, and ended the week with 14% gains.


While US and UK markets debated consequences of a rating cut by S&P500, Indian markets celebrated the commencement of Prime Minister Manmohan Singh's second term. I feel in the market there is this insecure and almost desperate need to believe that the worst is over! Trying to separate myself from this euphoria, I started looking at how certain stocks have performed during the past 3 months.



The results were quite unbelievable. As of Friday May 22nd:

Sensex has recorded 1 month gain of 34% and 3 month gain of 40% .

Nifty 30% in 1 month, 40% in 3 months.


Looking at the above numbers you will realize that the market has moved much higher and suddenly the stocks have become too expensive to accumulate. To emphasize my point further, I have summarized the 5 day, 1 month and 3 month performance of seven of my most favorite stocks.


Take a look, again data as of May 22nd 2009:


LNT up 50% in 1 month, up 100% in 3 months

BHEL up 22% in 1 month, up 45% in 3 months

REL up 23% in 1 month, up 74% in 3 months

SBI up 36% in 1 month, up 65% in 3 months

HDFC up 25% in 1 month, up 57% in 3 months

ICICI up 65% in 1 month, up 109% in 3 months

BHARTI up 21% in 1 month, up 33% in 3 months


The above data gives us confirmation of the fact that markets have moved out of the lows seen in Jan-Mar, but also poses the question, is this right time to hold back or continue to buy?


For me the bigger risk of political instability, credit crisis have abated, I have renewed hope in the new government to pursue policy implementation, but are these enough? Do we have the economic driver to take the markets higher or have we moved too high too fast. 


I am not sure of the answer. Let me know what you think. 


Antriksh Patel May 25, 2009 at 9:55 PM  

Nice summarization. Can this be attributed to the isolation theory as stated by our economists? I am not sure.