On Wednesday, the stockmarkets crossed an important milestone: the paper wealth they represent is now greater than the country’s total annual output as measured by the gross domestic product (GDP).
For the year ended March 31, 2006, the country’s GDP was estimated at Rs32,00,611 crore. Investor wealth in listed stocks shot up to an all-time record of Rs32,03,180 crore, thanks to a 291-point surge in the Sensex.
Put another way, if all investors sold their stocks at current prices, it would be more than enough to buy what the country produced in the whole of last year. It marks the coming of age of the Indian economy.
But for investors of every hue, the more immediate concern is whether this happy state of affairs can last, especially when the markets do not seem to know whether they are coming or going. Wednesday's rise was preceded by three days of correction soon after the Sensex hit an all-time peak of 12,039.55 last Thursday.
Three reasons are offered for the up-today-down-tomorrow syndrome. The first is the impending expiry on Thursday of April futures contracts. Most players who have hedged their positions by taking up the opposite view in the futures markets have to roll over their positions to contracts that terminate in May. Till this event passes off safely, the main cash market tends to remain nervous.
To make sure that speculators don’t overextend themselves, the NSE raised margins on index-based futures on Monday, forcing operators to reduce their overall speculative positions. This explains why the markets fell on Monday and Tuesday. Wednesday's roaring rise is evidence that there are still bargain-hunters with money out there.
The second reason why the markets are skittish is the growing divide between some foreign institutional investors (FIIs) and domestic mutual funds. The FIIs believe the markets have peaked, and have voted with their feet in recent days. Domestic mutual funds, which are flush with cash from new offerings, want to buy if prices seem to be falling to what they see as bargain levels.
With US interest rates set to rise further in May in view of robust growth and the threat of inflation, the FIIs see higher risk in Indian stocks than US government bonds, not to speak of other emerging market stocks that are not so richly valued.
A Citigroup report dated April 4 clearly says that Indian market valuations (are) into a bubble zone now. Another report by CLSA, dated April 20, says “the main risk for the Indian market... is the risk of a Wall Street-correlated correction.... This risk is now greater than at any time since early 2003, given the nasty double negative for equity markets posed by rising US interest rates and rising commodity prices.
FIIs from the US have not been too comfortable with the psychological mark of 12,000, says Sandeep Shenoy, strategist at Pioneer Intermediaries. In April, the FIIs have been net sellers to the extent of Rs1,270 crore.
This slack has been more than taken up by domestic mutual funds, which bought Rs1,626 crore worth of equity.
The third reason is the unfolding results season. While most of the early results from the technology companies have been positive, the market is beginning to wonder if it is time for companies with poorer results to lower the boom.
aceWith the results season progressing, there would be few triggers to push the markets up in the short term, says Sameer Kamdar, national head of broking firm Mata Securities. In other words, fasten your seat-belts for a bumpy ride.
Three reasons :
* Impending expiry of April derivatives contracts increases volatility
* FIIs see 12,000 mark as reason to be cautious on Indian stocks
* The best part of corporate results season may be over for now
Source : DNA Money
For the year ended March 31, 2006, the country’s GDP was estimated at Rs32,00,611 crore. Investor wealth in listed stocks shot up to an all-time record of Rs32,03,180 crore, thanks to a 291-point surge in the Sensex.
Put another way, if all investors sold their stocks at current prices, it would be more than enough to buy what the country produced in the whole of last year. It marks the coming of age of the Indian economy.
But for investors of every hue, the more immediate concern is whether this happy state of affairs can last, especially when the markets do not seem to know whether they are coming or going. Wednesday's rise was preceded by three days of correction soon after the Sensex hit an all-time peak of 12,039.55 last Thursday.
Three reasons are offered for the up-today-down-tomorrow syndrome. The first is the impending expiry on Thursday of April futures contracts. Most players who have hedged their positions by taking up the opposite view in the futures markets have to roll over their positions to contracts that terminate in May. Till this event passes off safely, the main cash market tends to remain nervous.
To make sure that speculators don’t overextend themselves, the NSE raised margins on index-based futures on Monday, forcing operators to reduce their overall speculative positions. This explains why the markets fell on Monday and Tuesday. Wednesday's roaring rise is evidence that there are still bargain-hunters with money out there.
The second reason why the markets are skittish is the growing divide between some foreign institutional investors (FIIs) and domestic mutual funds. The FIIs believe the markets have peaked, and have voted with their feet in recent days. Domestic mutual funds, which are flush with cash from new offerings, want to buy if prices seem to be falling to what they see as bargain levels.
With US interest rates set to rise further in May in view of robust growth and the threat of inflation, the FIIs see higher risk in Indian stocks than US government bonds, not to speak of other emerging market stocks that are not so richly valued.
A Citigroup report dated April 4 clearly says that Indian market valuations (are) into a bubble zone now. Another report by CLSA, dated April 20, says “the main risk for the Indian market... is the risk of a Wall Street-correlated correction.... This risk is now greater than at any time since early 2003, given the nasty double negative for equity markets posed by rising US interest rates and rising commodity prices.
FIIs from the US have not been too comfortable with the psychological mark of 12,000, says Sandeep Shenoy, strategist at Pioneer Intermediaries. In April, the FIIs have been net sellers to the extent of Rs1,270 crore.
This slack has been more than taken up by domestic mutual funds, which bought Rs1,626 crore worth of equity.
The third reason is the unfolding results season. While most of the early results from the technology companies have been positive, the market is beginning to wonder if it is time for companies with poorer results to lower the boom.
aceWith the results season progressing, there would be few triggers to push the markets up in the short term, says Sameer Kamdar, national head of broking firm Mata Securities. In other words, fasten your seat-belts for a bumpy ride.
Three reasons :
* Impending expiry of April derivatives contracts increases volatility
* FIIs see 12,000 mark as reason to be cautious on Indian stocks
* The best part of corporate results season may be over for now
Source : DNA Money