Is the Bull run over for equity markets?

Continuing from my last post on behavioral finance, the recent fall in the equity markets confirms the fickleness of human mind, when it comes to taking decision about our finances. Retail investors who were all gung-ho on the markets around Diwali, are now panicking and asking the question whether bull run is over on the markets? To answer this question I shall rely on the three different approaches to analyse the future of the markets:

• Fundamental Analysis: We all knew around Diwali that the markets were over stretched on fundamentals, and excess liquidity was driving the momentum stocks. So once the liquidity crunch was observed, after the unearthing of a series of scams, the momentum stocks in the realty and infra sectors were the worst performers. These stocks were beaten down to such ridiculous levels that quite a few of them are looking attractive at current levels. The positive GDP numbers announced today are pointing to the fact that the worst is over for the markets from the fundamental point of view, at least for now. The markets can expect some positive news flow from the international markets also in the days to come.
• Technical Analysis: The unabated run of our equity markets from the Nifty level of 4800 to 6300 did call for a technical correction. The markets have retraced around 40% of the above rise, which is close to the 38.2% retracement level held sacred by technical analysts. The bounce back on the markets was widely anticipated from the 5700 levels on the Nifty, and the markets have obliged. Given the oversold position of the markets the bounce back could be ferocious. The beaten down sectors shall be at the fore front of the rally. The technical correction seen by the markets is good for the long term health of the markets. 
• Astro Analysis: While analysing the markets I would like to give equal weight age to the astrological angle as the other two factors. Human behaviour is determined by the confluence of planetary configurations, and stock market behavior is no exception. As I am no expert in this area I would like to quote what the famous astrologer Lachman Das Madan had said in October: "Within a period of about one month from 6th November 2010 financial institutions, members of security forces, business people, diplomats, youth, sports people etc. are likely to be accused of corruption and illegal activities and actions are likely to be initiated against them". You can analyse the correctness of this astro prediction. The unearthing of scams one after another was influenced by the planetary configurations. The malefic affect of the planets now seems to be diminishing, hence we can soon expect business as usual in the markets.

In view of the above I would like to conclude that the Nifty and Sensex are likely to surpass their previous highs of 6300 and 21000 respectively by the year end. How much beyond these levels can the markets rise will largely depend on the liquidity flows. It seems that Christmas festivities have begun with the positive flow of economic data, India reporting 8.9% GDP growth in 2nd quarter. But this does not mean that the bad news is fully discounted by the markets. Behavioral finance tells us that human beings are in a state of denial to bad news when it first strikes, but gradually tend to accept it over a period of time. The bad news like the follow up on 2G scam and the Bank bribery scam will again come to haunt the markets around Budget time in February 2011. Coupled with bad news on economic recovery, or the lack of it, from European markets may spell doom for the markets again. The downward movement at that time could take the markets back to the sub 5500 levels on the Nifty again. This does not mean that the bull market is over, it only is a pointer to the fact that investors should keep booking partial profits whenever markets provide that opportunity.