InvestorQ : Is there a more practical approach to judging and interpreting market breadth?
priya Shah made post

Is there a more practical approach to judging and interpreting market breadth?

Answer
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Mahima Roy answered.
2 years ago


Back in 1991-92 the entire bull market was led by the replacement theory. Not surprisingly, it just lasted for a few months and subsequently crumbled under its own contradictions. The next bull rally in 1994 was again a narrow rally driven by FII buying into select stocks. Once the FII flow subsided due to rate hikes in the US, the tide turned and the market started slumping. The same was the case in the 1999 rally. The entire market was largely led by companies from the technology, media and the telecom sector, quoting at almost incredible valuations.

Why was the 2003-08 bull market so different? Unlike the 1999 rally, which was purely led by a global technology story, year 2003 was the base of an actual bull market. Massive investment in infrastructure eased business in India and lower taxes had put more money in the hands of people. Above all, the internet, telecom connectivity and air transport was making Indian businesses almost cost inelastic. Not surprisingly, this advantage was supported by breadth, and lasted a full 5 years. Breadth of market is a very important factor that ensures the longevity of bull markets.