Aug 3, 2002|
Investors shy away
It was another downer this week. July has definitely not been a good month for investors with the Sensex and Nifty losing 10% and 11% respectively in market cap. At the same time, Dow and NASDAQ were lower by 8% and 10% respectively. With the economy on an upturn and the troubles of last summer left behind, one wonder's, what's the panic?
Digging a little deeper to find the malaise, after the markets topped out in February '02, prior to the budget, which has become sort of a ritual, it has been mostly downhill. Data on mutual funds and foreign institutional investors (FIIs) -- among the more influential players -- suggests that they have tended to follow a contrasting investment pattern. Over the past two years, mutual funds have been net sellers while FIIs have been net buyers of equities. The net selling by mutual funds is reflective of the exodus from Unit Trust of India (UTI).
That said, post March '02, with outbreak of communal tensions followed by Kashmir conflagration topped with advisories, the ardent supporters -- FIIs -- turned net sellers between April to June '02. With key influential participants turning sellers, markets were headed only one direction. Over July '02, foreign portfolio investments have returned but are likely to have just evened out negative flows of mutual funds. Among mutual funds -- we suspect -- that with the rally in small and mid cap stocks, several private mutual funds have churned their portfolio to ride the current wave, which gets reflected on the broader market but not the benchmarks. UTI, on the other hand, reportedly, has been exiting from key blue chip counters, which suggests higher net sales on the benchmarks leading to pressure on indices.
As per reports and trader opinions, liquidity of a leading Mumbai-based operator is in question. Commercial banks holding collateral are likely to be liquidating stocks to recover borrowings. Loan against shares are generally offered on leading A-group shares, which again puts pressure on benchmarks. As a results the weakness on the narrow gauge of equities seems to be more due to technical factors -- lack of buying support. Retail investors, the other key player, we suspect, is likely to be on the sidelines not exerting influence to counteract the selling. Retail investors, historically, are known to be late joiners and not originators of a rally.
Growth in six core sector industries, which constitute 27% of the Index of Industrial Production (IIP), suggests that the economy in on an upturn. The six industries reported a 5.7% YoY growth in 1QFY03. Monsoons are a concern and likely to affect the industrial economy with a lag but the extent of impact is a grey area. Does it warrant a 10% drop in market cap? It seems, with monsoon reports dominating headlines of leading dailies and stock market channels, investor reaction is likely to border on excesses. In FY00 and FY01, agriculture reported growth of 3.1% and -6.6% respectively while GDP grew by 6.1% and 4%, which indicates industry & services grew by a higher figure. In FY02, GDP grew by 5.7% when poor agriculture performance in FY01 was to take the 'lagged effect'.
While corporates could be affected by poor monsoon, managements, especially good ones, are in place to overcome roadblocks and ensure bottomline growth. One that instantly comes to mind is HLL. Technically, the Sensex is weak. After facing resistance at 3,350 levels, it has been a sharp slide. Markets have some support at current levels of 2,950 levels. Breaking these levels, next support is at 2,750 levels before touching October '01 lows. Investors, as mentioned in earlier reports, need to recognize the strengths of the country.
More Views on News
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.
Aug 19, 2017
Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.
Aug 18, 2017
Buying the index now will hardly help make money in stocks even in ten years.
Aug 18, 2017
Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.
Aug 17, 2017
PersonalFN simplifies the mutual fund account statement for you.
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
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: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407