As chairman of the US Federal Reserve board, Alan Greenspan used the phrase “irrational exuberance” to describe the market boom of the 1990s. We’d like to remind you of the phrase now, when all indicators seem to point to an economic resurgence. Yes, we’ve shown how this might be the end of the bad times, but there is the other possible scenario—the creation of a bubble.
In a recent report, titled ‘Bubblenomics: The Super Bubble Reiterated’ on the Indian stock markets, UK-based equity research agency, Noble, says, “India’s economic fundamentals do not justify a strong bull run from this point on as the stock market is fully and fairly valued. We do not expect a dramatic improvement in corporate earnings and cash flows in 2009-10 in an economic environment that is still heavily government-supported.”
Similarly, in the DSP Merrill Lynch mid-year outlook, Jyotivardhan Jaipuria, MD and head of research (India), says, “Corrections are likely. After the Budget, we had one, but despite that we are up nearly 100% (from lows). Will we make another 100% in the next 6-12 months? I don’t think so.” Nilesh Jasani, head of research (India) at Credit Suisse, says the Sensex could dip 15-20% from its present level around the end of this year because of factors like monetary tightening, regional or global market corrections, reform disappointments, primary market issuance pressure and fiscal deficit worries.
This is not intended to discourage you from entering the markets. We just want you to understand that there’s another side to most market reports. Here are some reasons to counter the reports of a bull run:
Causes for Concern