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BW Businessworld

Daily Edit: Where Are The Buyers?

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There’s nothing more convincing – and tempting - than a sustained stock market rally.  The one-way Sensex trot over the past nine trading sessions has boosted the confidence of investors, but it has not translated into actual buying of shares.

The 30-share Sensex has gained over 5 per cent (or 1277 points) between July 14 and July 24, in what could be called a “rip-roaring rally” between 25000 and 26300 levels. Ideally, investors should have participated in the rally – especially towards the mid and tail-end part of the market pull-back. But that has not happened.

On the contrary, both retail and institutional investors have utilised the rally to book profits. The two categories (retail and domestic institutional investors) have redeemed shares worth Rs 1980 crore during the rally. That squares in on the fact that foreign portfolio investors have been the driving force behind current rally. Foreign investors have bought shares worth Rs 5300 crore since July 14.

This brings us to the most important question – can we trust this rally? Or, is this another stock market whirlpool to suck in gullible investors? That, perhaps, is the most difficult question to answer.

Market participation matrices such as broader indices return profile, advance/decline ratio and 52-week high / low stocks ratio reflect a very positive market trendline. The BSE 500 index – a group of top 500 BSE-listed companies – has kept apace with bellwether indices and have returned close to 5 per cent over the past nine trading sessions. Advance – decline ratio, which indicates the breadth of market, has been in the positive zone – with an average 1630 companies advancing (in terms of stock prices) every trading day as against 1440 that declined on the bourses. As on July 24, over 260 companies are close to their 52-week highs vis-à-vis 59 companies languishing near their 52-week low prices.

Bank of America Merrill Lynch (BOAML), which claims to have interviewed 60-odd institutional investors, has put out an extremely bullish report on Indian shares.

“The overwhelming consensus is bullish on India and practically every investor we met was OW India. There was practically no debate on our view that re-rating would drive markets to our year-end target of 27,000,” states the BOAML report. The more bullish of brokers have pronounced even higher - and many a time ‘impulsive-and-highly-improbable’ – Sensex targets.
Investors need to shut themselves off from the din. They should be cautious about large-ticket investments at these levels. Their best bet is to deploy money in smaller tranches at different market levels – especially during corrections. Over a five year period, most of these investments are likely to turn in generous returns for investors.

Happy Investing!!!
 


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