»The Honest Truth by Ajit Dayal

Nowhere to go?
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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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.