X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Stock markets: The US$ 2 bn bet - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Apr 25, 2001

    Stock markets: The US$ 2 bn bet

    On the 11th of February 2000, the BSE Sensex scaled an all time high of 5,933. This marked the peak of irrational investing in India, as elsewhere in the world, where Technology–Media–Telecom (TMT) represented the investment universe to many. However, like all too-good-to-be-true stories, this dream run on the bourses came to an abrupt end. Over a year down the line and the Sensex was struggling at 3,184 (down 46%).

    However, amidst all this volatility, there is one investor that has bet big, really BIG – the ubiquitous FII. In the calendar year 2000, when the index fell 33%, FIIs invested over US$ 1.4 bn in the domestic markets. Year 2000, by the way, was the year in which global stock markets came in for a massive drubbing. Despite the global gloom, money continued to find its way to India.

    Year 2001 so far has a similar story to tell. Year to date the Sensex has fallen 9.3% (19.5% if you consider the low touched recently) but enthusiasm among the FIIs has shown no sign of waning. Indeed, net FII investment so far in calendar year 2001 has crossed the US$ 2 bn mark. This by far is the largest inflow of FII money that India has ever witnessed in the first four months. The bullishness is underscored by the fact that this money has come to India in a challenging global economic environment.

  • More on FIIs
  • More on the Indian economy

    Consider the reasons why investing in the markets may not be a very appealing idea:

    • The stock market scam could get murkier, casting a shadow over any rally.
    • The ‘tehelka scam’ has once again brought to the fore the fractured nature of our polity. With state elections around the corner, there could yet be some repercussions.
    • The economy does not seem to be doing too well. Agriculture is still suffering from the unevenly distributed monsoon. Industrial production growth has almost stagnated. An indicator of the sluggishness is reflected in the sharp slowdown in the capital goods sector. The services sector, which was the growth engine in recent years, too has witnessed a slowdown this year. Then one also needs to factor in the impact of the removal of quantitative restrictions on imports.
    • Corporate results have not helped much either. Hindustan Lever, a consumer products and foods company, has recorded a growth of just 1% in turnover during the quarter ended March, highlighting the sluggishness in consumer demand. Then ofcourse we have the technology companies which took the wind out of the staunchest of bulls. Infosys’ warning, which now seems to be based on a worst-case scenario, contributed considerably to the fall in the market.

    Why then are the FIIs so bullish? One compelling argument is that valuations are very attractive in the Indian market. But probably, apart from the valuation factor, there are some country specific reasons -

    • India, given its large middle class, is a potentially huge market. As incomes rise, consumption should boom resulting in better corporate profitability and growth.
    • Manpower, both in abundance and skill, is considered to be a strong point. This will give services – software and R&D for example, a big boost as demand for services finds its way to India. This will support growth in companies offering such services. Also, as more and more people find employment, consumption will rise.
    • The incumbent government seems to be doing its bit in pushing through with the reforms process. Although the pace is slow, it is nevertheless steady. These measures will help improve the sustainable growth rate of the economy, thus contributing to higher incomes (which, in turn, will support higher consumption). A good example of this is the recent cut in interest rates and the first tentative steps towards labour reforms.
    • Indeed, if this were to turn out, India would find itself in a virtuous circle where higher per capita incomes result in higher demand for goods and services. This in turn will support investment activity in the country, thereby further contributing to growth and employment.

    If you are not that convinced, its fine. Most of us are still trying to find a convincing rationale behind this US$ 2 bn bet. One reason probably could be that flush with their annual allocations, FIIs jumped headlong into the declining and increasingly attractive Indian markets. However, the markets kept falling, until it crashed on the news of the scam. So maybe this just represents a bad investment. But then, there maybe something more to this investment rush. It won’t be long before the truth is out.

     

     

    Equitymaster requests your view! Post a comment on "Stock markets: The US$ 2 bn bet". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Why Hasn't Warren Buffett Rung the Bell Yet? (The 5 Minute Wrapup)

    Aug 22, 2017

    It's surprising Warren Buffett hasn't warned investors about the expensive stock market? Let us know why.

    Think Twice Before You Keep Money In A Savings Bank Account (Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    A Darkness Is Spreading Across the US (Vivek Kaul's Diary)

    Aug 22, 2017

    Today, we are attacked by one preposterous thing after another, each of them even more absurd than the last.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working (Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
  •  

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 22, 2017 01:15 PM

    MARKET STATS