Nowhere to go? - The Honest Truth By Ajit Dayal
Investing in India - Honest Truth by Ajit Dayal
Nowhere to go? A  A  A
16 DECEMBER 2009

The traders and speculators are confused.
They don't quite know what to make of the millions of pages of data and news flow that is generated every day.

One report says that India's GDP rose by 7.9% for the quarter ended September 30. This in a quarter where India witnessed one of its worst rainfall levels in decades implying that agricultural activity would not have been growing at its full potential.

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Another report says that industrial production grew at 10.3% for the month of October.

Yet another piece of good news: the advance tax paid by companies is increasing.

But the stock markets seem unimpressed.

Graph 1: Bouncing around...but going nowhere
Source: Bloomberg, data as of December 11th, 2009

Since September 30, 2009 the BSE 30 Index has lost -0.05%. If you add back the benefits of dividends, then the BSE 30 Total Return Index has gained +0.11%.

The NSE 50 has hardly been "nifty". It's been boring and dull.
The NSE 50 gained +0.77% since September 30, 2009 on a "total return" basis.

Not that the world markets have done much better: the MSCI All Country World Index has gained +0.10%.

There is inaction in all this action
All this lack of action is particularly disturbing to 2 sets of people:
  1. Those who watch stock market TV channels and trade on every sound-byte they hear, and
  2. Those who have to fill up all that empty space with words that don't seem to have any impact on the stock markets.
On a typical day on the Indian stock exchanges about Rs 20,000 crore is traded.
There have been about 50 trading days between September 30th and December 11th. So, this translates into a total turnover of 1,000,000 crore...that sounds like a lot. About USD 220 billion. Brokers probably earned an average of 0.2% commission on these trades. Giving them a neat revenue stream of Rs 2,000 crore or Rs 40 crore per trading day.

With the markets flat - could people have made much money?

Maybe some did: they would have needed the skill let (and luck) to have bought each time the market fell and sold just as it hit the top end of this trading band of 16,000 to 17,000 that it seems to be stuck in.

The TV stock market shows have probably had a more difficult time than the stock brokers.

A typical TV channel had maybe 8 hours of live, new coverage of the market. Watching its every move: analysing the results of the companies; looking for breaking news; many quotes and much soul-searching about the US Dollar and the global economy.
Over 50 trading days, that is a total of 400 hours of fresh, live work.
And if you assume that the average speed of talking on these business channels is about 100 words / minute that would translate to an impressive 2.4 million words spoken over the past 50 days.

Per business channel.

So, given that there are some 6 business channels that is a pretty solid 14.4 million words.

There are 0.8 million words in the Bible, according to a quick search on Google.
There are 0.08 million words in the Quran.
There was no data on Google for the Gita, but my rough estimate indicates there could be 0.03 million words.

Interestingly, there are about 3.7 million words in the US tax code.
And, from what those familiar with the US tax code tell me, it is a bunch of gibberish.

So the 14.4 million words spoken over 400 hours of live stock market coverage across 6 TV channels have not moved the markets.
Maybe it has the same impact as the US tax code: the more they say the less clear it is.

Well, I don't have a lot more to say.
I have probably written some 20,000 words of text over the past 50 trading days. So I am as guilty as others of creating a lot of noise.

But the action of the lips and the inaction of the market should not stop those with a long term investment outlook from continuing to buy mutual funds and stocks.
In fact, when markets go nowhere, they may present an opportunity.
Between October 2008 and March 2009, the markets bounced in the 8,000 to 10,000 range. And they have surged since then.

Hang on: I am not suggesting that an 80% surge is around the corner.

But this is true: despite the 14.4 million words on business TV channels and the market going nowhere over the past 50 trading days, the Indian economy is growing.

And buying stocks is a long term investment in the long term growth of the economy.
That is the summary of these 800 words.

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Quantum Long Term Equity Fund Quantum Gold Fund
Quantum Liquid Fund
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An investment for the future and an opportunity to profit from the long term economic growth in India A hedge against a global financial crisis and an "insurance" for your portfolio Cash in hand for any emergency uses but should get better returns than a savings account in a bank
Suggested allocation 80% 20% Keep aside money to meet your expenses for 6 months to 2 years

Disclaimer: Past performance may or may not be sustained in the future. Mutual Fund investments are subject to market risks, fluctuation in NAV's and uncertainty of dividend distributions. Please read offer documents of the relevant schemes carefully before making any investments. Click here for the detailed risk factors and statutory information"

Disclaimer: The Honest Truth is authored by Ajit Dayal. Ajit is a Director at Quantum Advisors Pvt. Ltd and Quantum Asset Management Company Pvt. Ltd. The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and has not been authenticated by any statutory authority. The author, Equitymaster, Quantum AMC and Quantum Advisors do not claim it to be accurate nor accept any responsibility for the same. Please read the detailed Terms of Use of the web site. To write to Ajit, please click here.

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13 Responses to "Nowhere to go?"


Apr 10, 2010

Hi Ajit,

I am holding 2500 Mahindra Satyam @100 from last 3 month. its nearly 40% of my total portfolio.

I can want another 6-9 month, can you pls give me openion on this counter as this si 30% of my total investment amount.
thanks Ankit



praful chhasatia

Dec 16, 2009

you have rightly brought out TV's role in market,and one need to do a study on what happens to those stocks discussed on screen, going forward
Thank You


Ajit Dayal

Dec 16, 2009

Praveen, you are correct: I apologise for the error in simple mathematics. It is Rs 40 crore per day (and not Rs 4 crore per day).
Ravi, there was an error in the emailed version which went out to subscribers earlier on Wednesday morning. Praveen's good eye caught the slip up and we managed to change it on the internet version.

By the way, the stock exchanges have worked out a solution to the "nowhere" movement of the market - they will stay open longer and allow more words to be created! Oh, well...



Dec 16, 2009

The reason why 12.4 million words have not moved the market is very simple; 6.2 million negative words have nullified 6.2 million positive ones, result zero. As for conclusion of the write-up, it is clear from the summary given at the end. it is as good a day for Ajit as any.



Dec 16, 2009

Realy chanels air more words than bible quaran and gita
but then give rosy picture about power ipos,gdp but never dare to give comarative data with chaina.
india should concentrate on more efforts to use gobar gas , sugar mill waste & agricultural biofuels for creating power in big scale. and make less use of fossil fuels which are going to exhaust one day---- but then



Dec 16, 2009

Dear Ajit,
The one point that you should also highlight is that stocks also provide a hedge against inflation. As the value of rupee falls, all cash held as cash, deteriorates in true value. Stocks represented by real investment in real world assets represent the full value of the invested money and not the depleted value in an inflationary economy. So even a flat company, that doesn't have large profits, presents a better investment opportunity than holding cash.



Dec 16, 2009

your own eyes fail you praveen!
where is it written as Rs.4 crore? it is written as 40crore alright.


vinay kumar agrawal

Dec 16, 2009

my dear ajit ji in equitymaster mail i read your coments per day in diwali muhurt nifty at 5142 and after two month nifty in5050and 5182reng this mean nowhere to go on 1-04-09 nifty at3020 after three month nifty at4424 on6-07-09 near about 48% rise in three month and after three month in diwali muhurt at5142 in15%rise and this two month only consolidation and distribution of stocks by the zobers to small investors on 25-02-09 nifty at 2723 after 90%plus they distributed hy beta stocks to investor and bying small cap stocks ithink for two months down trend its may can go to 4400 nifty and then upword at5400 at march 31-2010 in 2010 smal cap and mid cap investor is gainar --i am investor from last 13 years ihave recved good gain in apr may june 09 thanks till next letor------vinay



Dec 16, 2009

I am only buying now with the hope that our economy will grow. But I am restricting my buying to the extent I can afford to loose without tears from my near & Dear.


ameet parekh

Dec 16, 2009

good article,clear and precise.ajit you are my guru.

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