|»5 Minute Wrap Up by Equitymaster|
On This Day - 21 FEBRUARY 2011
Should you blindly follow FII cues?
In this issue:
-------------------------- How to Profit from Futures? Ask Asad himself! --------------------------
People turn to everyone to seek answers for these questions. But what is the right answer? A leading daily tried to come up with an answer for this. It has advised small investors to look at those stocks that are witnessing buying interest from the FIIs. It has run study that establishes that in the period from March to December 2010, the 57% of the stocks that were favoured by the FIIs outperformed the Sensex.
Sounds like a very interesting theory indeed. Just buy the stocks that the FIIs are buying. But what happens when the FIIs are selling? In this case, as per the same daily, 76% of the stocks that were being sold by the FIIs underperformed the Sensex.
So if these results are accurate and you decide to follow the FIIs, then true that you would end up with some stocks that do well. But when the FIIs sell, the same stock plummets to new lows. And keep this point in mind, you find out the FIIs are selling only after they have already sold. There is no pre-warning system and you end up getting stuck with the wrong stock.
This leads us back to the same question. Which stock should one buy? In our opinion, there is no substitute for fundamentals. Companies with sound fundamentals And solid management teams are the ones who maximize the returns for their shareholders over the long term. Yes, there may be short term glitches but over the long term, the tears are converted to smiles for the investors.
Banks have the ability to pass on higher interest costs to customers by increasing lending rates. But competition is forcing them to absorb some of the cost themselves. This in turn hurts their margins. While we believe that the long term prospects of the banking sector is strong in a country like India, short term margin pressures may exist.
The ONGC issue is supposed to hit around mid March 2011.But as per the latest news, the issue of SAIL will hit the market only in the next fiscal. So, the government's Rs 400 bn target for the fiscal will be derailed by about Rs 80 bn, which is the amount that the SAIL FPO would have probably garnered. Now the reasons for this delay are very obvious. The stock markets are going through a rough patch. And after a big ticket issue like ONGC, there may be little resources left with investors for SAIL. On similar lines, several other divestment plans have also been delayed. The rise in oil prices have thrown off FPO plans of the oil marketing major IOC indefinitely. The company is currently losing a record Rs 2.37 bn per day on selling auto and cooking fuel below cost. The issue of Hindustan Copper which was earlier scheduled for December 2010 has also been deferred due to the volatility in the markets. With divestment plans getting delayed, the sailing won't be smooth as far as our fiscal deficit is concerned.
And so investors the world over are looking to hedge this risk by investing in precious metals such as gold and silver. But the demand for silver has probably been more than its counterpart of late simply because it has more industrial uses than gold. And with the global economy improving a tad bit, demand for silver has also seen a rise. Indeed, it does look like silver will outperform gold for the time being at least.
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