A nascent rally has been building up over the last few trading sessions despite the rather murky outlook everywhere. Usually such rallies, called bear market rallies or cheater’s rallies, result in very sharp and unexpected moves forcing short sellers to cover their positions and deceiving many to believe that the worst may be over or already priced in. On rare occasions, these rallies could result in a complete reversal too. Though nothing can ever be determined or ruled out while predicting market sentiments, yet chances of a complete reversal seem very unlikely in the near future. We have been recommending investors to use the downturn to buy quality stocks. Though some stock specific opportunities may still rise but generally buying should not be done by investors in this rally. Patiently holding on to your investments would be the right strategy going forward. Buying should be deferred till the next downturn develops or as and when the new bull market starts.
Though we do not expect the present rally to sustain for very long, yet the downside from these levels is also not likely to be very significant. Firstly valuations are attractive and fairly close to the levels from where bear markets have ended historically. Also despite poor governance, rising inflation and a high base effect, our economy is still managing to grow at a decent rate. Moreover we still remain an under penetrated market in terms of most of the consumer goods and services. This means that it is reasonable to assume that our growth will continue to remain robust for at least a few more years. Hence for passive long term investors it makes sense to hold on to your investments. Traders may create positive positions with an appropriate stop loss and a maximum of 30 days perspective. Some other major shock in the global markets might be the primary risk factor to our budding bull market.
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