Of P-Notes and Bird Hits - Views on News from Equitymaster

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Of P-Notes and Bird Hits

Oct 16, 2007

While all the media is playing up the hype of the recent surge in the BSE-Sensex from 18k to 19k, a step back indicates that:

  1. Every 1,000 point is now a LOWER percentage number, so should be easier to achieve. An Index moving from 1,000 to 2,000 is a 1,000 point move but, more importantly, is a 100% move! While a move from 18,000 to 19,000 is also a 1,000 point move, it depicts an increase of 4.3 % (see the Table below).

    BSE-30 Index Date Days Points % Gain per day, points Gain per day %
    13,989 21-Aug - - - - -
    15,121 30-Aug 7 1,132 8.1% 162 1.2%
    16,322 19-Sep 14 1,201 7.9% 86 0.6%
    17,150 27-Sep 6 828 5.1% 138 0.8%
    18,280 9-Oct 7 1,130 6.6% 161 0.9%
    19,058 15-Oct 4 778 4.3% 195 1.1%

  2. The pace of this 1,000 point move to the 19k levels in 4 days sounds impressive (indeed it is the second strongest!) but, on further analysis the move from 14,000 to 15,000 was not only more in terms of the percentage gain ( 8.1 %) but was also a stronger move. See the column on the extreme right that indicates the average % change per day.

Index levels, needless to say, are representative of a basket of stocks and your portfolio may or may not have moved with the same intensity. The Index is a number, don't break your head over it. But do analyse the underlying valuations of the companies that comprise the Index - and of the companies outside the Index. (click here for our Research Reports).

So, while the Finance Minister and Securities and Exchange Board of India (SEBI) are now worried about the monster they have helped create due to their willingness to allow short-term flows via P-Notes, sit back and enjoy the ride.

Of course, you may need to fasten your seat belts.

Really tight.

If the entire Australian cricket team and the remnants of a ramshackle Indian team was brought down to Nagpur airport by a bird-hit, imagine what could happen if those P-Note owners took a break and stopped buying India for one day.

Ouch....

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