Volatility at the international bourses continue to reflect a confusing trend and the same is being reflected on the domestic bourses.
Reasons for drift
Prof Menachem Brenner of Stern School of Business is of the opinion that, there has always been a shake up in the forward and cash markets whenever derivative instruments were introduced. He was speaking at an investor conference organised by Sebi at Y B Chavan centre on Friday.
"Gradually when the instruments gain acceptence and investor participation increases the futures market takeoff," he said.
Delving deeper into the working of the futures market, he said that it is important that the regulator concentrate on Indian market conditions and lay down the regulations accordingly rather than blindly following world trend.
Prof Brenner listed out certain important benefits of having a vibrant futures market including portfolio substitution, hedge options on stocks (cash market), overcome regulatory/ institutional restriction , healthy speculation and most importantly exploiting index arbitrage oppurnities.
Some of the uses could become very crucial in the volatile market condition like the Indian market witnessed of late, he said.
Stressing the importance of having a calendar spread, a mechanism of timing your risk in relation to present market condition while buying futures, he informed the audience that institutional participation is crucial in this section of the market. He added that proper regulation should be immediately laid down for this purpose.
He said risk could arise in the futures market due to mispricing of the instruments, general lack of experience with derivatives, institutional restriction especially with regard to short selling. These factors have been a stumbling block worldwide and the same applies in Indian context.
With the rally failing to sustain, the dip in prices has speeded up the introspection process. The reasons for the downward pressure are increasing in count with every passing day.
However, one fundamental problem cited by a large section of the FII community is the slow down in the privatisation process. With the reforms on the PSU front raising hope and ultimately failing to deliver, the attractiveness of other markets competing for money has increased exponentially. And with select South East Asian markets showing strength, FIIs like all institutions are showing a distinct preference for these markets at this point in time.
ICE action
The meltdown, signs of solidifying and subsequent melting of ICE (information technology, communications and entertainment) stocks continue.
Zee Telefilms leads the pack, displaying a curious trend and in the process foxing even veteran traders on the street. Supply at the counter came in the form of the Y Car brokerage to the extent of half a million shares. From there on sentiment only weakened increasing the slide in the scrip. However, the conviction of broking houses such as Global Brokerage and Uncle Sam has
not being shaken .Uncle Sam is of the view that the changes in domestic uplinking policy for satellite channels should result in significant benefits for the company.
The broking house has set a price target of Rs 1,020. The same is not finding willing takers in the fund managing community if the
scrips movement this week is considered.
The Sterlite counter continues to display weakness and some more sell pressure was visible in the scrip with the pressure this time round coming from Small Daddy. Offloading of a lakh shares in Sterlite is reported to have being effected by the fund. Prudent Fund is also reported to have taken part in the momentum game
and reshuffled portfolio in the process. With the markets as a whole tanking on the last day of the week, people who preferred to participate in the momentum game have been hit hard.
Shyam Telecom in the telecom industry has being a gainer during the week on the news of corporate restructuring , buying by funds, including Savvy and Jeeyemmo, and a high level of speculative interest. With no negative events to plague this counter it was one of the few speculative counters to escape a beating for the week as a whole. While Sterlite suffered from the after effects of the shock given by the Department of Telecommunications , HFCL has again reached levels which are considered unattractive by some.
Smart Trader's recipe
The Smart Trader is of the view than there may be some more pain for those on the street. However, he rushes to add that it may not be a bad idea after all to start selectively picking up quality stocks. However, with conviction level of players at a new low it may not be a piece of suggestion which several on the street are willing to listen to. But then that is what separates the Smart thinker
from the herd on the street.
