We are in a strong bull market since past many weeks. While the nifty is taking some pause, the small and midcaps are showing a lot of strength and a lot of stocks from these spaces are showing parabolic moves. I am seeing these kind of animal spirits in the markets after a long time.
CNX midcap had posted a top at around 32500 in October 2021 and the zone of 32500 (plus or minus a few hundred points ) has been offering sustained resistance ever since. This midcap index however managed to cross the above mentioned resistance zone in May 2023 and since past few weeks we have seen very strong rallies in a lot of fancied names in the space . Once an index that has been under pressure for better part of nearly 18 months breaks out, the subsequent rally can be fast and furious. That is exactly what we have been seeing in our markets.
Some amount of froth is visible in the markets especially in the fancied sectors like defence, railways, power, electronics manufacturing, just to name a few. A lot of stocks have run up a lot based on narrative alone, even before results have been delivered.
A lot of Whisper stocks are also going up, based on rumours and stories floating around on social media like Whatsapp and Twitter. Investors need to be careful not to get caught up in these kind of names. While the run ups in these names have been and will be swift and very alluring, major mistakes are committed in bull markets. So care has to be taken to be invested in good quality companies even if return expectations are lower as compared to the proverbial cats and dogs running hard in the markets.
Many stocks that were darlings of previous bull markets but had fallen out of favour and had corrected drastically are also showing some signs of life. New kinds of narratives and stories are built around these kind of names.
A good thing observed in the markets of late has been the allround participation in the bull markets. Previously neglected sectors like pharma ( there are some others too, but this one catches the eye easily because of more familiarity with the sector) and some other sectors are also showing strength and this is a welcome sign.
Every strong bull markets brings about a feeling of invincibility in the mind of investors and this time also its no different. So while its the time to keep riding the bull markets, one has to keep an eye open to spot any signs of trouble brewing at the earliest. Capital preservation is often a neglected aspect in strong bull markets.
Personally as of now, I remain fully invested and am comfortable riding the momentum, but will be on look out for signs of any excesses/froth.
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