This is a good topic. I have seen, and I am sure many of us also- that market valuation is on the higher side for some time now, but it does not have "Euphoria” yet. Many experts believe that there is a lot of legs left in the market to go forward. I am not an expert anything related to macroeconomic, so shall leave it here.
During the upturn/downturn, market undergoes through various phases and capitulation is one of the phases. I was under the impression that it existed only during a downturn, but someone pointed to me that “capitation” also exists during the market high.
“Capitulation”- per se, means surrendering. During the recession, the emotional pain to handle plunging share prices is too much for market participants to manage and they exit the stock/market. Capitulation happens when too many market participants try to exit at the same time, and this marks the bottom of the bear market, in some peoples view. https://asymmetryobservations.files.wordpress.com/2013/08/investor-emotion-market-cycles-fear-hope-greed1.png
The capitulation also happens when the market is going higher. We (myself and few unlock people like me) wait for the market to correct and value to appear. However, the wait does not get over. Instead, it gets longer and longer, and a share tends to scale regular new highs. Eventually, we surrender a will to wait, give up and buy the stock at a price, which normally is on the higher side and suffer consequence when the market takes a turn, which it often does.
I would be lying if I say which is the market situation is now, but it looks a nearing to the second capitulation to me.
I feel this is a testing time for a value-oriented investor. Many years back a long-term investor told me “In the Bull market, Mudhe be Zinda vote hai… and in the Bear market, Zinda be Mudhe vote hai “- It means (In Bull market dead stock become very active and in bear market good stocks become dead). One can see the stocks which were hardly traded a few years back or unknown, are catching investors fancy. I have seen this happening a few times earlier, and I see no reason to be different this time.
I think overall the market is driven by Private Banks and NBFC’s in general. Of course, there are other stocks which are on sound footing, but they are not many, and many investors are chasing them.
I think IT is a sector which has value and looks like “Throwing a baby with a bathwater” situation. I agree the growth rate has come down in single digits for the major player (Infy, TCS, WIPRO). However, there are still a lot of player- niche or otherwise- which are also impacted by the overall sectoral apathy. There are many IT companies which have ROE > 30, no debt and double digits growth coupled with buyback. These companies could be a good candidate for a decent return in my view. Agree, there are headwinds, but IT has always suffered one headwinds or other and they have always flourished so far. And, a lot of these headwinds, is already factored in the share prices, so there is not much optimism build into these stocks prices. I am finding this is strong hunting grounds for the stock. They may not multiply from here, but I would rather have protected downside than unprotected downside in “Hot Stock”.
Howard Mark’s quote looks apt to me “Move but with cautions!."
Most start losing their control as the markets keep rising and everyone else is making money except those who try and remain rational. This finally makes even the very patient give in and that is then euphoria stage.