Irrational behaviour

Sentiments continue to play a huge role in the Indian market

The market has been in rally mode, rising by nearly 17% for the last six weeks and the Sensex is currently past 18,000. Foreign institutional investors (FIIs) seem to have discovered India all over again, betting more than a billion dollars on India in a jiffy. The sentiment is extremely strong, despite all the news and opinion of gloom and doom—from scams in India to problems in Europe to slow growth in the US. The latest corporate earnings haven’t been too spectacular either, yet the markets shot up. Why? Well, for starters, the Indian market was mildly undervalued in late December. At a Sensex of 15,200 the PE was 13.4.

With the New Year came a massive liquidity boost which caused sentiment to change overnight. Ben Bernanke, the chairman of US Federal Reserve announced that interest rates will be low as long as it is needed. This caused hedge funds and FIIs to pour money in risky assets such as emerging markets. Since the Indian market had underperformed grossly in 2011, it bounced back the most. Additionally, the European Central Bank (ECB) pledged support to keep the European Union alive and keep Greece in the Euro. Further, the Reserve Bank of India (RBI) cut in CRR by 0.5% to 5.5%. Investors assumed that interest rate cycle has peaked in India.

So what happed to all the gloom and doom stories in the media, the continuous lament about the lack of reforms and poor governance? The fact is stock markets are always sentiment-driven. It takes a few good or bad news to turn the market around, for better or worse. We all are well aware of the lack of policy initiatives from the government and its talks of “reforms”. These things come up in a bear market and disappear when a rally starts. People simply forget them, especially since the media is always looking for cause & effect and never highlight that short-term market movements have nothing to do with long-term issues like reforms. From early December 1996, the Sensex rallied more than 60% till August 1997, on some hope or the other. It fell after the Asian crisis but rallied again 45% from December 1998 to April 1999, on another set of misplaced hopes. After all, it is not “reforms” or governance that caused the Sensex to rise 80% in 2003.

The fact is, after a deep decline, investors only need the flimsiest of excuses to buy. This is exactly what has happened this time—as it has happened many times in the past. People forget all the time and the media, which shapes popular opinion, have no truck with history. Hence the surprise all around.


Mumbai world’s 2nd least expensive city, Delhi 4th

In the EIU survey, three of the four cheapest locations globally—Karachi, Mumbai, Tehran and New Delhi—are from the Indian subcontinent. Zurich has toppled Tokyo as the world’s most expensive city, although both of them have become relatively expensive in the past one year

New Delhi: A high rate of inflation may be pinching hard on day-to-day life of the people in the country, but a global survey has named two Indian cities—the financial hub Mumbai and the national capital New Delhi—among the four least expensive places across the world, reports PTI.

As per the worldwide ‘cost of living’ survey by the Economist Intelligence Unit (EIU), Mumbai is the second least expensive city globally, while New Delhi is ranked fourth.

Karachi in Pakistan has been named as the cheapest destination globally, while Zurich in Switzerland is the most expensive place across the world, as per the survey.

Inflationary pressures have figured among the key concerns facing the government as well as the public in India for many months now, although the rate of inflation has declined a bit in the recent past.

The country’s headline inflation fell to 6.55% in January 2012. It had stood at 7.47% in December 2011.

Despite the drop in inflation in January, finance minister Pranab Mukherjee had said the rate of price rise is “still not at acceptable level” and hoped for further dip.

Headline inflation was near double digit for most of 2010 and 2011. The apex bank hiked key policy rates 13 times, totalling 350 basis points between March 2010 and October 2011 to tame inflation.

In the EIU survey, three of the four cheapest locations globally—Karachi, Mumbai, Tehran and New Delhi—are from the Indian subcontinent.

“India has been such a target of labour outsourcing, relocation and FDI over the last decade,” EIU said.

“With cheap labour and land costs making India and Pakistan incredibly attractive to those bargain hungry visitors or investors willing to brave some of the security risks that accompany such low prices, especially in Pakistan,” it added.

All the four cheapest cities have retained their positions from the previous year’s list.

However, Zurich has toppled Tokyo as the world’s most expensive city, although both of them have become relatively expensive in the past one year.

“Both Japan and Switzerland have seen strong currency movements over the last few years which have made them relatively more expensive,” EIU said.

After Karachi, Mumbai, Tehran and New Delhi, the report has named Muscat, Dhaka, Algiers, Kathmandu, Panama City and Jeddah among the least expensive cities.

In the list of ten most expensive cities, Zurich and Tokyo are followed by Geneva, Osaka Kobe, Oslo, Paris, Sydney, Melbourne, Singapore and Frankfurt.

The survey compared over 400 individual prices across 160 products and services. They include food, drink, clothing, household supplies and personal care items, home rents, transport, utility bills, private schools, domestic help and recreational costs.

The main reason behind low cost of living in the Middle Eastern cities was the use of price controls and the pegging of currencies to the US dollar, the report said.

This year’s list interestingly features cities from the Asia Pacific region (including Australasia) in the ten most expensive cities while on the other hand, three of the four cheapest locations hail from the Indian subcontinent.

“Although Asian hubs are making their presence felt at the top of the cost of living stakes, another kind of Asian hub is making its presence felt at the bottom, EIU said.

Singapore’s presence in the top ten most expensive cities highlights a shift away from Western Europe towards Asian hubs, the report said.

“Cities from the Asia Pacific region (including Australasia) now make up half the ten most expensive,” EIU said adding Western Europe still accounts for 24 of the most expensive cities in the top 50, with 14 hailing from Asia.

Interestingly, despite the Eurozone weaknesses German and French cities are still relatively expensive with Paris and Frankfurt holding firm in the ten most expensive. Besides, Oslo, which was considered the world’s most expensive city only a few years ago, also sits towards the top of the ranking.


Market highly overbought: Thursday Closing Report

Nifty to move in the range of 5,460 to 5,625

The market, which opened in the red on selling pressure and weak global cues, saw a good recovery in post-noon trade. But the upmove lacked strength, resulting in the benchmarks snapping their three-day rally. Yesterday’s panic buying was followed by short selling today. The Nifty moved in a narrow range with a downward pull. However, the index made a smart recovery ending with a marginal loss of 10 points. The benchmark should cross high of 5,542 made on 15th February to reach the level of 5,625 else we may see it moving sideways and down to the level of 5,460. The National Stock Exchange (NSE) saw a massive volume 120.12 crore shares.

After having notched 2% gain yesterday, profit booking resulted in the market taking a breather today. Fresh worries about Greece pushed the Asian pack lower in morning trade, which hurt investor sentiments here. The Nifty, which closed at 5,532 on Wednesday, opened 18 points down at 5514. Similarly, the Sensex saw a cut of 39 points as it resumed trade at 18,163.

Trading in a narrow range, the market extended its losses and touched its intraday low at around 11.30am. At the lows, the Nifty touched 5,484 and the Sensex fell to 18,043.

The indices witnessed a slow climb in subsequent trade on select buying in realty and power stocks. The gains saw the market touch its intraday high in late trade where the Nifty rose to 5,531 and the Sensex went up to 18,183.

However, benchmarks came off the highs and closed with marginal losses. The Nifty finished 10 points down at 5,522 and the Sensex closed at 18,154, down 48 points from its previous close.

The advance-decline ratio on the NSE was 826:623.

The broader indices underperformed the Sensex today, as the BSE Mid-cap index declined 1.04% and the BSE Small-cap index dropped 0.96%.

The key sectoral gainers were BSE Realty (up 1.53%); BSE Power (up 1.37%); BSE Capital Goods (up 0.65%); BSE IT (up 0.49%) and BSE Auto (up 0.34%). The losers were led by BSE Metal (down 1.63%); BSE Oil & Gas (down 1.53%); BSE Consumer Durables (down 0.92%) and BSE Fast Moving Consumer Goods (down 0.02%).

Jindal Steel (up 4.94%); Hero MotoCorp (up 4.57%) State Bank of India (up 4.38%); Maruti Suzuki (up 4.10%) and Bajaj Auto (up 3.81%) were the main advancers on the Sensex. Coal India (down 5.44%); Hindalco Industries (down 4.71%); Sterlite Industries (down 4.16%); Tata Motors (down 3.67%) and Tata Steel (down 3.23%) were the main trailing stocks.

Hero MotoCorp (up 4.34%); Jindal Steel (up 4.27%); SBI (up 4.10%); Maruti Suzuki (up 4.10%) and Cairn India (up 3.17%) topped the Nifty chart today. The laggards were led by Coal India (down 5.84%); Hindalco Ind (down 5.14%); Tata Motors (down 4.12%); Sterlite Ind (down 3.86%) and Tata Steel (down 3.77%).

Markets in Asia settled in the negative as European policymakers deferred an announcement of a fresh bailout for Greece, as the leaders still doubt the beleaguered nation’s commitment towards spending cuts.  Prospects of more ratings downgrades for 17 global and 114 European banks also weighed on the sentiments.

The Shanghai Composite declined 0.42%; the Hang Seng dropped 0.41%; the Jakarta Composite fell by .64%; the KLSE Composite slipped by 0.69%; the Nikkei 225 fell by 0.24%; the Straits Times tanked 1.14%, the Seoul Composite lost 1.38% and the Taiwan Weighted settled 1.69% down. At the time of writing, the key European indices were trading with losses of 0.75% to 1.15% and the US stock futures were lower.

Back home, foreign institutional investors were net buyers of shares totalling Rs1,838.85 crore on Wednesday. On the other hand, domestic institutional investors were net sellers of equities amounting to Rs313.47 crore.

Telecom services major Reliance Communications (RCom) today said it has received RBI approval for the refinancing for redemption of its outstanding FCCBs (Foreign Currency Convertible Bonds) worth Rs5,825 crore. The outstanding FCCBs of $1,182 million (approximately Rs5,825 crore at the prevailing dollar exchange rate of Rs 49.30) will be redeemed on the due date of 1 March 2012. The stock fell by 2.39% to close at rs102.05 on the NSE.

Wyeth has claimed $960 million from Sun Pharmaceutical Industries for alleged patent violation in launching a generic version of acid reflux drug Protonix in the US. The original patent relating to Protonix, known chemically as pantoprazole sodium, is held by Swiss drugmaker Nycomed and was licensed to Wyeth, which is now owned by Pfizer. Wyeth lost 0.16% and closed at Rs870 on the NSE today.

Union Bank of India is likely to raise up to Rs955 crore through the preferential route. The bank has received the board’s approval to issue up to 2.6 lakh crore shares to LIC on a preferential allotment basis. This works to 5% of the bank’s equity share capital and is expected to mop-up to Rs600 crore. It will also raise nearly Rs355 crore by issuing shares to the government. The banking stock fell 1.28% to close at Rs255.05 on the NSE.




5 years ago




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