The Indian equity market has been reaching historic highs of late and investors seem to be relishing the prospect of a strong and decisive government taking charge in May. Technical analysts have been predicting Nifty targets starting from 7,000+, going all the way to as high as 8,400 in this calendar year. The surging bull market since mid-February has certainly emboldened chartists, and fundamental analysts are marshalling newer and increasingly incredible theories to substantiate their ever-higher targets for the market. Earlier bull markets had their own share of such theories, like the one in the early 1990s where the low per capita consumption in India of cement, steel, aluminium, fertilisers, pesticides, processed food, personal care products, pharmaceuticals and almost every other product or service, compared with the developed markets and even some of the larger developing markets would necessitate a quick catch-up with these higher consumption economies. This was supposed to deliver untold riches to the lay equity investor in the short term.
The bull market faded away soon and investors quickly realised that these changes in consumption patterns are not quick, quantum jumps but very gradual trend changes over several decades where there are very few winners. At the turn of the millennium, the extant theory was about the absolute foolishness of looking for profit and profit growth when eyeballs and footfalls and their super-exponential potential growth were all that was needed to be espoused for one to be regarded as a savvy investor. It took just a few months for this theory of eyeballs and footfalls to be debunked and sanity in valuations to be restored.
Bull markets, for sure, need unconventional and new theories to be propounded to sustain the momentum. A particularly ebullient technical analyst told me recently that once the market has risen enough to form a strongly bullish chart, the broad economic or corporate fundamentals do not matter because the market will create events to sustain the momentum. The received wisdom is that while markets do build up expectations on forthcoming events, they eventually react to these events as they unfold but, in my utter innocence, I had never thought that the market had the potency to create economic, political and social events to sustain an ongoing bullish trend.
To cite another recent anecdote, with most