Hope on the Horizon
June 1 saw the Sensex gain more than 1,000 points and almost 50 stocks kissing their 52-week highs and 400 stocks on the BSE hitting the upper circuit with as many as 200 stocks giving fresh ‘buy’ signals on a technical basis. When you look at this data, it does not sound like we are in a bear market. But then the market is always full of surprises! The rapid fall in stock prices in March surprised many investors and now the equally rapid recovery has been rather bewildering. Locally, the markets are cheering the ‘Unlock 1’ phase along with some quality results announced on the bourses. Globally, the markets are reacting positively to the economic optimism in spite of concerns about the US-China trade war and riots taking centre-stage in the US.
Many are touting the current market rally as a bear market rally and advising investors to be cagey of the ongoing market situation. As such, we thought it would be the right time to throw some light on what exactly is a bear market rally and whether it is possible to decipher a bear market rally from a bull market rally. Our cover story talks about this dilemma faced by investors and throws light on the previous bear market rallies, which may prove to be a valuable guide while sailing through the current tides. Do let us know how you have used the inputs shared to crack the market codes.
Meanwhile, there is a perception that FII-owned stocks have taken a beating due to heavy selling and these stocks may be too risky to hold in one’s portfolio. Our special story isolates those stocks that have high FII holding versus those that have minimal or no FII holding and studies the performance of these stocks. There are some interesting observations that will help you decide on stocks before including them in your portfolio.
Further, option trading is most profitable when uncertainty in the markets increases. The current environment is just perfect for option traders to make the most of the situation. However, we have found that option traders miss cashing in on the opportunity as they commit some typical mistakes on a regular basis. Our special story therefore focuses on options and highlights these common mistakes while also providing a solution on how to avoid them in the future.
As mentioned last time, the visibility on market direction will become much clearer by early July as there is a lag of 30 days between the steps taken and results thereof. The low virus detections across the western countries today can be attributed to the aggressive lockdown steps that were taken a month ago. Hence, it would be too early to rush to conclusions. However, a feeling currently on the rise is that the situation is not likely to be as grim on the market front as anticipated earlier. In the new normal, people are learning to take the right precautions, venturing out only when needed and accepting to live with the virus.
While the economy has been badly hit, it does not appear it will get worse. Hence, most likely, the worst for the market is behind us though the recovery journey here onwards may be long. With the right noise made by governments across the world to support the economies with a ‘no matter what it takes’ attitude and the global market flushed with liquidity under the influence of low interest rate regime, equities is one asset class you want to be in. The last few years have been difficult for equities. One can expect equities to deliver superior performance in the coming years. So stay safe and do not stop investing!
RAJESH V PADODE
Managing Director & Editor