Traders and others who follow the markets daily may know the answer but I can't think of another time a circuit-breaker tripped on a bullish rally. It looks like the Indian stock markets were halted for the day after they rallied more than 17% in one day:
A deluge of buy orders greeted Indian shares Monday, propelling the country's benchmark stock indexes higher by more than 17% and triggering market circuit-breakers to force an early suspension of the day's trading.
Mumbai stocks leapt right off the blocks on optimism that the Congress Party-led alliance's victory in the just-concluded general election will result in a more market-friendly economic policy.
Within moments of the markets opening for trade, the Bombay Stock Exchange's 30-stock Sensex and the National Stock Exchange's 50-stock S&P CNX Nifty surged by nearly 15%, triggering a trading halt for two hours. Immediately at the resumption of trade, they surged further, prompting a trading suspension for the rest of the day.
That's a huge move even for an emerging market. Usually markets decline a lot but they rarely move up.
The strong market rally is due to the national election but I wonder if there is too much hype. Similar to the Chinese stock market and that of many other emerging markets, I believe the Indian stock market resembles more of a casino.
In the prior term, the government had to ally with far-left parties, such as the various incarnations of the Communist party, whereas they don't need their support going forward. The alliance with the Communists made it difficult to carry out some free-market-oriented reforms in the last term but it remains to be seen what can be accomplished given the economic slowdown.
My View of India Hasn't Changed
I have always been bearish on India, at least ever since I started investing (for real) 5 years ago. Initially my concern was valuation. Most Indian stocks seemed overvalued. India has capital controls so it's almost impossible for foreigners in invest in their local market. So one is typically limited to buying NYSE-listed stocks. But, on top of the valuations being high based on fundamentals, the NYSE-listed stocks used to trade at huge premiums to the Indian-listed ones (this was the case a few years ago but not sure now.)
Having said all that, I was probably wrong--not sure yet. Although valuations were high, the growth actually came through so the stock market has actually gone up quite a bit. Even after the crash over the last two years, it's still about 2x the 2004 levels (in nominal terms; real returns will be slightly lower but should still be a large positive number.)
This is an example of a situation that value-type investors will generally miss. Similar to growth stock investing, genuine emerging market growth can overcome seemingly high valuations. If anyone wonders why people invest in ridiculously high prices, it's because growth can overcome the valuations. Just like how people bet on tech stocks even with high P/E multiples, a lot of people do the same with emerging markets. If they are right, they will do well.
I'm still unsure of my incorrect view and am still maintaining my bearish view for another reason. I haven't check the numbers recently (I doubt they changed) but, as I have pointed out before, India runs a current account deficit (China doesn't; Brazil doesn't.) There is nothing wrong with a current account deficit per se. Those who defend current account deficits point to USA or Australia in the last few decades as examples of countries that have grown by utilizing foreign funding. But the long-term consequence is uncertain. One thing that is certain is that current account deficit countries are vulnerable to foreign capital flight. I'm not predicting this but there is a non-trivial probability of a credit bust unfolding in India. Similar to how many Eastern European countries are facing a credit bust because foreigners (basically foreign banks) are unwilling to finance their consumers and businesses, a similar thing may occur in India. However, since India is a developing country and the economy is still largely unsophisticated, the impact may be limited (e.g. most people are still poor and they have no access to credit; businesses also don't have easy access to credit and don't really borrow from foreigners.) But it's something to be wary of.