Return Of The Native
Or, why the bull market is alive and well
With the market going essentially nowhere in the last several weeks and with traders taking a bath in their efforts to make money from what looks like a genuine bull market, concerns have grown that we may not really be in a bull market. To complicate matters, there surfaced in the market a few reports calling for sub6000 levels for the Nifty and our own RBI governor chipped in with a crash comment. In addition, almost to a man, experts have been calling for some halt to the rise stating that markets have run ahead of fundamentals.
If you think about it, all of the above is guesswork, including that of our respected Rbi guv. Analysts using Elliot wave theories or govt officials using past patterns or economists and fundamental analysts using forecasted earnings are all taking a pot-shot at discerning the future. No one to be blamed for that because they are all doing just what they are paid or asked to do- which is, to give a forecast for the future. How reliable are those forecasts, only time will tell. I am inclined to agree with Saurabh Mukerjee when he said on TV that it has now become fashionable to be cautious!!
But, one metric that we can definitely rely upon- to say that the bull market is alive and perhaps about to kick some more- is the flow of funds. The FII flow may have trickled down a bit but what is most heartening is the news bit that domestic investors have funnelled the highest amount of money into mutual funds in the last six years. More, the inflow into equity schemes has been the highest too! Earlier too we had inflows but it was all into debt and liquid funds and thus of no use to equity markets. But this time around we have direct increased inflow into equity schemes. This evidence is the most telling one, implying that the bull market is here to stay and perhaps flourish. Inflow would automatically mean that the redemption pressure that was continuous on the funds thru the last several years has now eased. This will give a huge breather to the domestic fund managers, allowing them to really concentrate on doing a better job of getting returns for their unit holders. So far they were hampered by redemptions and were in firefighting mode, ensuring that the NAVs don’t drop too much!
Once the domestic funds start on a buying mode, it is just a matter of time before the retail bandwagon comes into the market directly. With FIIs continuing to favour India (in that context the recent report of Morgan Stanley, stating that FMs across the globe are at a high in terms of India interest), the bull can be surely said to be alive and well.