Abhinav Sharma

Who's Responsible for the Indian Stock Bubble?

Momentum based buying results in a different psychology.
Suppose I am a foreign institutional investor currently invested in US only. I realize that India and other emerging markets are the next big thing. However, the emerging markets have already moved up substantially in the last few months. While I am not entirely happy with the valuations in India, I believe that even from these levels it would continue moving up. I do not want to miss out on the India story. As a result, I get to enter the market when it has already run up quite a bit. My trading in the market sends signals to other prospective investors who have funds waiting to be deployed. And then he would invest to further raise the valuations. This is nothing but a vicious circle!

The valuations even now are quite on the higher side. When we dropped down in May, everyone was saying market is overheated. Now, we are close to those levels once again and it may not be far when the funds start pulling out of an expensive growth story once again!