Last month, I wrote about the MAMU moment. If you go short in this market, you will burn your hands badly since share prices are unwilling to fall. This is a classic Melt Up moment with the mid cap index rising by 6% and the small cap index by 7% in July.

Now the question is whether this is a young or mature bull market.

Let me quote a famous John Templeton saying, “Bull markets are born on pessimism, grow on scepticism, mature on optimism, and die on euphoria,” he explained. Let us try to understand which stage we are at.

Last June 2022, the market was pessimistic, which worsened by December. While the rest of the world was celebrating Christmas, investors were downcast. We had advised investors to go out and invest in the market at that moment. In our December 22nd article, we stated, “There is no way we expect the Indian market to touch the lows seen in June 2022. The risk-reward ratio remains in favor of reward. Hence, correction in the portfolio value is temporary.”

Despite many analysts’ predictions at the time, the Indian market did not touch the June low. In our February blog, we indicated clearly, “A BIG RALLY IS IN THE OFFING.” We recommended investors to go out as a turnaround is around the corner. You can read the blog HERE We hope you heeded our advice

Excessive pessimism in June and December 2022 laid a strong foundation for the new bull market.

So, the obvious question is, will this bull market continue? The answer is unequivocally YES. Many investors are sceptical of India’s economic tale. They are concerned about the monsoon and the general election results. They are waiting on the sidelines for the market to correct itself. They would have had a dozen or more arguments to persuade you that the market will correct. At some point in the future, they will become frustrated as the market will keep rising, and they will wait helplessly for the market to correct.

Every webinar, I receive more questions that cast doubt on the rally’s long-term sustainability. That makes me happy and at ease. More scepticism indicates a greater probability of the market climbing. As a result, scepticism encourages me to put more money into the stock market rather than take money out. We haven’t yet reached the level of optimism that comes with a matured bull market. Euphoria is the next phase, which I believe is many years away.

Positive News Flow

Inflation, once a dreaded word, is now softening across the world. It’s a little early to believe that we have demolished the demons of Inflation. Inflation will remain sticky due to the low base effect and higher crude oil prices.

But no one expects Inflation to reach the levels seen last year. Central banks throughout the world have shifted their rhetoric from aggressive rate hikes to modest or no rate hikes at all. Economy outlook across the world is improving, including in the US, where no one is talking about a hard landing. The IMF recently revised its global growth forecast for 2023 to 3% from 2.8% previously. FPIs, who sold heavily in 2022, citing rich valuations, is making a huge comeback in India. They have already invested more than Rs 1 lac crore in YTD. The turn of events is now turning positive from extremely negative. This helps indices and sentiments to rise

But No Vertical Rise

While we remain bullish on the market, we anticipate periodic price and timing corrections. Rather than selling out, every correction should be used as an opportunity to add funds. I believe the Indian market would perform similarly to the period from 2003 to 2007. The next five years present an excellent opportunity for equity investors to create wealth. This is a young bull market.

Your Strategy

We have often predicted since the beginning of 2023 that this will be the year of mid and small caps. Mid and small caps have gained more than 20% YTD, while large caps have gained 10%. Even in the second half, we expect mid and small caps will outperform. Increase your allocation to mid- and small-cap stocks. They are poised to be big outperformers in the coming years.

This is a young bull market that has the potential to go from strength to strength. Don’t make the mistake of assuming that this is a mature bull market