 "The new high and the importance of December 8")
As I write, the Sensex is trading around 20,541, down some 600-odd points from the all-time high touched around Diwali. On November 12, 2012, the index was trading around 18,670. In the one year in between, Rs 83,400 crore of foreign money came in. Yet, the index gained 1,871 points or exactly 10 per cent over one year.
To put this in perspective, in the calendar year 2007, Indian equities received a comparatively lower amount of foreign capital at Rs 71,800 crore. But, the index had gained a whopping 47 per cent. Another number is going to confuse you even more. Between December 31, 2007, when the index hit an intra-day high of 20,484 and today, the Indian markets have received inflows of Rs 3.81 lakh crore. For the sake of clarity, this number was derived from the cumulative flows number given by Sebi. At the end of 2007, cumulative foreign institutional investor inflows into Indian equities stood at Rs 2.83 lakh crore. As on November 11, 2013, this had swelled to Rs 6.64 lakh crore.
Where did all this money go? What has it resulted in? A paltry gain of 57 points in the index over six years? Has Sensex ceased to be a reliable barometer of market performance? How does one explain this? What are we missing here?
Another theory is that the money is not going into stocks that have enough weight to drive the index. For example, one of the Sensex stocks that has been a multi-bagger is the post demerger Bajaj Auto. The stock topped the list of gainers in many comparisons made between January 2008 highs and the recent peaks. But, Bajaj Auto has a weight of 1.71 per cent in the index. Hindustan Unilever, driven by its huge buyback has less than three per cent.
Another big mouth that is guzzling FII flows is the government disinvestment programme. As discussed earlier in these columns, it has taken a lion's share and ONGC, the most influential state-owned firm in the index, has a weight of 3.5 per cent.
The Centre has to sell Coal India. At current prices, a 10 per cent stake sale should go for Rs 18,500-19,000 crore. Such a huge issue cannot go through unless there is some buoyancy. It is almost difficult to recall a new high without an accompanying jumbo public issue. In 2008, it was RPower and in 2010, it was the Coal India IPO. On the other hand, despite all the neglect in the recent times, Reliance Industries (RIL) still holds about nine per cent weightage, trailing only ITC (10.2 per cent). Reliance's KG D6 related headwinds continue to drag the market.
It is difficult to keep faith in a rally that ignores RIL, more so in the run-up to a share sale. There is talk of a Narendra Modi rally. The Street probably feels only a 'Modi'-fied Centre will wake up Reliance from its slumber. December 8, the date on which state election results will be out, may confirm this rally. Don't break your fixed deposit that earns nine per cent till then.
To put this in perspective, in the calendar year 2007, Indian equities received a comparatively lower amount of foreign capital at Rs 71,800 crore. But, the index had gained a whopping 47 per cent. Another number is going to confuse you even more. Between December 31, 2007, when the index hit an intra-day high of 20,484 and today, the Indian markets have received inflows of Rs 3.81 lakh crore. For the sake of clarity, this number was derived from the cumulative flows number given by Sebi. At the end of 2007, cumulative foreign institutional investor inflows into Indian equities stood at Rs 2.83 lakh crore. As on November 11, 2013, this had swelled to Rs 6.64 lakh crore.
Where did all this money go? What has it resulted in? A paltry gain of 57 points in the index over six years? Has Sensex ceased to be a reliable barometer of market performance? How does one explain this? What are we missing here?
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One ready explanation is that foreign money is exploring value in the smaller large caps and the larger mid-cap stocks outside the index. But the mid-cap and other broader indices are not reflecting this boom. Also, the smaller stocks may not have enough depth to absorb this kind of flows.
Another theory is that the money is not going into stocks that have enough weight to drive the index. For example, one of the Sensex stocks that has been a multi-bagger is the post demerger Bajaj Auto. The stock topped the list of gainers in many comparisons made between January 2008 highs and the recent peaks. But, Bajaj Auto has a weight of 1.71 per cent in the index. Hindustan Unilever, driven by its huge buyback has less than three per cent.
Another big mouth that is guzzling FII flows is the government disinvestment programme. As discussed earlier in these columns, it has taken a lion's share and ONGC, the most influential state-owned firm in the index, has a weight of 3.5 per cent.
The Centre has to sell Coal India. At current prices, a 10 per cent stake sale should go for Rs 18,500-19,000 crore. Such a huge issue cannot go through unless there is some buoyancy. It is almost difficult to recall a new high without an accompanying jumbo public issue. In 2008, it was RPower and in 2010, it was the Coal India IPO. On the other hand, despite all the neglect in the recent times, Reliance Industries (RIL) still holds about nine per cent weightage, trailing only ITC (10.2 per cent). Reliance's KG D6 related headwinds continue to drag the market.
It is difficult to keep faith in a rally that ignores RIL, more so in the run-up to a share sale. There is talk of a Narendra Modi rally. The Street probably feels only a 'Modi'-fied Centre will wake up Reliance from its slumber. December 8, the date on which state election results will be out, may confirm this rally. Don't break your fixed deposit that earns nine per cent till then.