WHAT DRIVES THE MARKET?

Why is it that when the markets are down, only that time, all the negative news which as such was always there, somehow gets a life of its own, like a multi-headed hydra?

The fact is that very same news pre-existed before the falling markets, the pessimism was always there but somehow, when the stock prices crash, this fall in overall confidence and negative news everywhere becomes all the more prominent. Is it that the poor markets are because of the negative news or is it that the negative news gains dominance because markets are negative? Egg before the chicken or vice versa; that’s the question, really.

Take a look at all the news that is doing the rounds currently:

• The dangerous political game being played out at the Indo-China border, creating a war-like situation.
• The fall in the US markets
• Yes, the surging Covid suddenly was all-important today
• Poor corporate earnings
• The contracting GDP which was announced four days ago
• The fiscal deficit, the unemployment
• Worrisome tax collection
• Fear of sovereign ratings coming down drastically
• The NPAs and banking crisis waiting to unfold

So, as one can see, there is nothing new as such – all these were there yesterday too but today, it has become omnipotent.

That’s how perceptions are created; the media too senses the mood and publishes news which it feels will attract more eye balls, given mood of the people. When the overall sentiment is not upbeat, it is only bad news which gets attention; anything good gets relegated to the junk; there is simply no mood to read or listen to anything remotely optimistic. This is how sentiments work – so right now when the moods are down, a good earnings or announcement of a liberal interim dividend will have no bearing. Companies do post good earnings but it is constantly compared with estimates and then butchered down saying, “below estimates.”  What we also see is that when brokerage houses put out reports, reducing price targets or downgrading, irrespective of the performance, the stock price will figure among the top five losers on the bourses. Ditto is the case when brokerage houses put out a positive report. Essentially, what this also indicates is that big brokerage/fund houses are the ones who call the shots and that’s the simple truth.

The stock market, the pure icon of capitalism is moved purely by sentiments – economics, fundamentals and all other things come much later. That is the underlying truth – markets are driven only by sentiments.

Two days up and one day down – that’s how it will be always. Does that mean we quit the markets because we cannot handle the volatility? Not at all! The best strategy for now is to identify strong stocks and keep buying into them for long term. This is the perfect time to ride the storm out by buying good stocks when the tide turns next year.

HDFC, CG Power, Bharti Infratel, Fairchem, Biocon, Bandhan Bank, UPL, HCL Tech, Pidilite Inds, Motherson Sumi, ICICI Bank, SBI, Britannia, Wipro, HUL, Colgate - keep a watch and every dip, buy for the long term.

A falling market is uplifting for the long-term bargain hunter! You are simply spoilt for choice – so many stocks and so little money!