Presenting to you, dear readers, the Never Say Never series. Here we will discuss all those topics that a typical market participant thinks could never happen. I am a strong believer in faith and everything but I also know to never challenge the universe – in our case: the market.
I learned early on, that biases are a natural by-product of the human mind. Everyone has them, in some form or the other. But one ought to leave these biases right outside the door before entering the market. Because as soon as you believe that something could never happen, most often it does.
I had a client ask me incessantly what the next major support of a particular stock was, and after ten revisions, I said 0. “Your maximum risk is if the stock goes to 0”. He stared at me, his mouth agape with incredulity.
Cut to today, where I cannot make that statement again. You see, Crude Oil traded below 0. And that changed the very idea most people believed in, me included.
So here we are today to discuss with you things in the market that may leave you astounded.
Today we are going to discuss something that most market participants would either frown upon or shrug their shoulders over in denial/disbelief.
The Indian market is acting as the leading indicator at a global level. Let’s let that sink in for a while.
For far too long we’ve been used to following the global markets for signals with regards to the Indian market. But if there’s anything that anyone knows about the market, then it is this that correlations can decouple, trends can change, and inter-market relationships can alter.
For a while now we’ve been talking about the strength in the Indian market and how it has been outperforming the Emerging Markets as well Global Markets.
For instance, take a look at India’s performance vs the rest of the world, i.e, the All Country World Index (ACWI). You can see in the chart below the strong outperformance that is on display in the Indian market. While the breakouts were concurrent, the strength and momentum in the Indian market have been consistent.
Click on the chart to zoom in.
So this was India vs. the world. What about India vs. the Emerging markets? Isn’t that a more fair comparison?
Well, the same storyline continues here too.
Nifty 50 has been outperforming its fellow developing markets as well. While the Emerging markets index has moved back below the crucial 2018 highs (when risk-on assets peaked out), Nifty has continued to power through.
Notice how this negative divergence played out in 2018 as well. But the Indian broader market continued to move higher.
If your next argument is that China is a major factor in the downturn of the Emerging markets and that the above chart doesn’t tell the true story, then take a look at the next chart.
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