(Neelkanth Mishra is the co-head of APAC Strategy and India Strategist for Credit Suisse. The column first appeared in the print edition of Indian Express on October 14, 2021)
- In financial markets, “herd behaviour” is a warning sign: When markets are doing well, people invest for no other reason than their neighbours having become wealthier (and vice versa). In the launch of a new mutual fund, for example, money flowed in from 93 per cent of India’s PIN codes. Even as we celebrate the deeper penetration of equity ownership and broader participation in wealth creation, it is reasonable to assume that a large part of this new capital is not as well informed as it should be: Even financial newspapers reach a small fraction of India’s PIN codes. There is another human trait that affects markets — success increases risk appetite. If someone’s financial investments work, they are very likely to invest more, and ignore safety measures. The current rise of the Nifty is the highest without even a 10 per cent correction since 1992. This unbroken run itself is likely to have triggered larger and riskier investments, which are further pushing up stock prices…
