Friends – the sentiment on the street has gone from bearish to bullish. 

When you look outside the window, it is not reflecting reality. And so one wonders what is happening.

This note is aimed at trying to clear up these murky thoughts.

As i write this note, Nifty is up from 7500 to 11200 -a 49% jump.

This bullishness is not just in India. Globally all stock markets are almost back to their pre pandemic levels.

Looking back  – it is now evident that even before the pandemic, the global economy (except the US) was in decline.  The pandemic was the perfect black swan event and the speed of the stock market crash (which took everyone by surprise) indicates that this was a bubble that was waiting for the pin.

Now, as always, excessive debt and low interest rates are being used to bail the economies out.

This is led by the USD Fed resulting in the fall of US Dollar.

Excessive debt and low interest rates can result in inflationary pressures and expectations of economic growth.

As long as the inflation is under control and interest rates are on their way down, there is a case to be made for a bullish stock market.

This new bull market in India is also fuelled by savers moving out of FD’s.

I believe that the recent jump in retail investor participation is the start of a bigger trend.As long as FD and PPF rates stay low, this trend will accelerate in the coming years.

Low interest rates also justify higher valuations (higher PE ratios). The Sensex PE of 26 currently may look high – but remember that FD rates in India are around 5% which means a PE of 20 is the base case.

Right now, the Indian markets are driven by Indian retail and HNI investors. The FII’s are sitting tight but buying very little as of now. The MF’s have to be fully invested at all times and so they depend on money inflow  -which has dried up. The current surge is coming from Indian retail and HNI investors.

This bull market powered by global liquidity from central banks and a falling dollar is not going to go away soon – I believe it will last for a few years (may be till 2024).

This time it will not be the large bank stocks as they bear the burden of past NPA’s and the pandemic.Newly listed banks and financials should do better.

Gold has been in a bull market for the past 2 years and will continue due to the liquidity fuelled rally.

Base metals are also starting the rally (look at stocks prices of Tata steel, Hindalco and Hindustan zinc).

Agri commodities like Sugar will follow the rally (as laggards).

And there is the Pharma sector that has already rallied hard since March end.

I am also looking at good mid caps to perform in this rally.

So to conclude – a Nifty rally back to all time highs is not ruled out.

Put your seat belts ON for a 2-4 year bull run backed by a falling dollar and rising prices as the primary driver