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Stock markets: Mélange of sentiments

Dec 8, 2001

A unique relationship seems to be developing on the bourses, globally. The markets continue to climb higher, as more and more participants begin doubting the rally. But then every rally is said to start with disbelief like every trough is expected to be a bottom. And then there are some who are only questioning the speed of the rally. In all the months of the current calendar year, except September, mutual funds have been net sellers. For the month of December their inflow has been marginally positive. FIIs, on the other hand, have a mirror investing pattern. In only the month of September '01 have FIIs pulled out money, which incidentally was the worst month for domestic equity markets. That much for making a right call. This pattern of investing seems to have set minds running, as FIIs are considered to be among the savviest of investors. Though one can throw the value investing argument in their favour. Nevertheless, this time around, FIIs, being net investors of Rs 8.7 bn through the last two months, rode the rally. In fact, in the first week of December, FIIs have pumped in an additional Rs 6.2 bn.

Among the possible conspiracy theories, if at all any, could be that these category of investors close their books in the month of December. In which case they have to mark to market their investments and would rather have the indices trading higher. Further, this theory can hold true globally. Does it then mean that once books are closed, FIIs are likely to exit stocks leading to markets giving up gains?

The Nifty futures are showing a small negative cost of carry, which indicates that the index is likely to be rangebound. However, the volume in the market is not significant to draw a conclusion. Also, cash and futures market have reflective properties, as one tends to have a bearing on the other.

The BSE Sensex, at current levels, faces weak resistance with stronger resistance only at 3,700 levels. It seems, however, investors could be at the edge of their seats ready to exit on the slightest fears of a sell off. Last week, we mentioned some of the top gainers being part of the K-10 portfolio. This time around we are highlighting a list of top 25 A-group stocks that have clocked the maximum percentage gains over the past month, which brings us to the next stock market theory. Many a times the best performing stocks belong to the worst performing companies.

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