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Joyless 12,000

The Sensex is back above 12,000 and yet I see none of those broad smiles and shining eyes among stock market types. This is a joyless 12,000. It's as if the cricket team has won, but the opponents were Namibia or Nepal


I remember once reading in a magazine article how India's cricket victories seemed to put the whole country in a better mood. For a day or two after a cricketing triumph, people are a little more polite and easy-going, they are a more sociable, they quarrel less easily, police constables hit rickshaw-pullers with less vigour and so on. And of course, the opposite happens when India loses.

I guess it's only to be expected that the movements of the BSE Sensex produce a similar cycle of mood swings among investors and others who are involved with the stock markets. Why, there are news anchors on some TV channels who narrate each fall of the Sensex as if it were a personal tragedy for them. But then, what do I know, it may actually be a personal tragedy for some of them.

However, something seems to be have been broken in this Sensex-mood linkage currently. The Sensex is back above 12,000 and yet I see none of those broad smiles and shining eyes among stock market types. Even Sensex headlines printed on pink newsprint don't have those ghastly puns anymore. This is a joyless 12,000. It's as if the cricket team has won, but the opponents were Namibia or Nepal.

The reason why this is so is very simple--this 12,000 is an illusion. The personal Sensex of most investors is depressingly far from having reached 12,000. When the Sensex was initially heading across these levels, it was carrying along as camp followers a huge majority of the stocks traded on the markets. When the Sensex fell, they all fell, and the more speculative mid-caps and small-caps fell far more than the Sensex.

While this was expected--smaller companies generally rise or fall more than larger companies in any broad market movement, there was a human problem behind the statistics. There was a large population of inexperienced investors who had been attracted to the markets during the last three months of the bull-run. Somehow, when stocks start rising indiscriminately, it's always the newbie who has blundered in looking for easy money who gets to buy the duds. But that actually confuses the cause and the effect. What really happens is this: Since only the easily-fooled and inexperienced momentum-chaser puts money into the dud stocks, the rise of the duds is a sure sign of foolish money flowing into the markets.

Here's the full story. First the wise money goes into the good stocks and makes them rise. Then, using the ruboff from this, the clever money goes into dud stocks and nudges them up. Then, the foolish money goes into the duds, replacing the clever money (which sells out). Then the markets fall and the foolish money and its owners part company. And then the cycle starts all over again.

Normally, the cycles are so far apart that by the time one comes around, the foolish money has forgotten the previous one. This time, it's different. The break in the cycle was just a brief interruption and the foolish money is still around licking its wounds, with very fresh memory of what happened the last time. And that should make the next few months very interesting.


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