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After Party, Hangover

Posted By: Admin

I love parties. They are great times to hang out with friends and buddies and exchange a lot of banter and jokes. In fact during the pandemic one of the most missed items was these parties.  Usually these parties are also times when one unwinds with a little alcohol and in the midst of friends,  there is no telling how much is too much. Before you know it, you are feeling nice and your friends have just become your BEST friends as well. There is music , food and lots of drinks so if you have  had a tough work week, a party with friends is the perfect way to de- Stress and restore your balance.  However every once in a while you go a little overboard with your alcohol consumption. So while the party is on, your body supports you completely and therefore bears all the alcohol, however once it is over and you are all by yourself then it hits you.  You try to sleep and because of the alcohol( Sugar) it is difficult to sleep well and you get up the next morning with a Hang-over. So I have come to realize that a great party is always  succeeded by a Hangover. 

Ever so often the same effect is seen in the stock market as well. In the context of the Stock markets, Liquidity is the alcohol, a good quantum is important to have a great  bull run in the stock market. But sometimes there is just too much liquidity that hits the  stock markets.  In these times, everything seems shiny, every stock or mutual fund one invests into is running up…driven by the ample liquidity. We are in a similar boat now. Am by no means suggesting a rapid meltdown of sorts and that stock markets are in a big bubble. What I am  merely saying is that now that Equities are in a more pricier territory, we should   expect that next year or so may not be great from a returns perspective in the stock market. While the long term picture of growth remains steady,  in the short term one must expect some form of a Hangover in stocks. 

How will the hangover play out for the stock market ? 

It may be a price correction i.e the market may correct by   about 5-10% or thereabouts over the next few months and thereafter stabilize based on various factors and move ahead ; or

It may be a time correction i.e the markets may hover around the current levels and wait for corporate earnings  to catch up, so for a period of 12 -24 months one may find the markets hovering at these levels of 50K – 55K levels on the sensex. 

Notwithstanding any of these, it is entirely possible that the party is still in progress and may go on for a lot longer than we believe it should. That’s the difficulty of stock market investing. So we are not attempting to predict the future. Only that we want to prepare the mind for what we believe may happen in the future. 

As stated by Louis Pasteur "Chance favors the prepared mind, and opportunity favors the bold.". Lets keep a  prepared mind about the possibilities and be ready to take advantage of opportunities going forward..

Babu Krishnamorrthy
Chief Sherpa

 

 

 

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