Stocks
Nifty, Sensex Still Under Pressure - Weekly market report
Nifty has to stay above 7900 for an upmove
 
We had mentioned that Nifty, Sensex may try to stabilise and rally and if Nifty reclaims 8,400. However, a huge decline in the US markets the previous Saturday, followed up by crashing markets in Asia, led to a major fall in Indian markets.
 
Over the week, the indices recovered a little but the net loss over the week was 4%-5%. 
 
 
On Monday, global stock markets were in a turmoil, and in sympathy, Sensex, the key equity index of the Bombay Stock Exchange (BSE) dived 5.94%, while the wider 50-scrip Nifty of the National Stock Exchange closed 491 points or 5.92% down at 7,809 points.
 
Stock markets from Japan to the US were on a major tailspin. A huge fall in the US stock market on Friday triggered off a domino effect on global stock markets after two years of relative calm.
 
The Indian market continued to act in sympathy with the global markets on Tuesday. After a huge crash across all markets on Monday, the Asian markets were all mostly up except that of China and Japan, while European markets were trading sharply higher and so were US futures. This rubbed off on the Indian markets which staged a modest rally. Global markets also got a boost with a surprise rate cut by China in later afternoon.
 
On Wednesday, benchmarks in the Indian stock market were unable to sustain Tuesday’s recovery after the crash on Monday. The market fell again on Wednesday by over 1%. The US markets staged a huge recovery on Wednesday. On Thursday, the market recovered a bit. The US reported that it logged in strong economic growth in the June quarter which sent the US markets higher again on Thursday. Rebound in rupee value, stronger Chinese markets and better global sentiments ushered in a major recovery in the Indian and global equity markets on Friday till noon. However, the market suffered a sharp selloff in the afternoon and closed marginally higher. We suspect that the market will struggle to rally and may suffer a further dip later in the coming week.
 
Out of the 27 main sectors tracked by Moneylife, top five and the bottom five sectors for this week were:
 

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FIIs are selling aggressively. Should you buy?
When FIIs sold aggressively, on most occasions it would have been a good time to buy. But, only when valuations are reasonable
 
For the past 22 years, the main players in the Indian markets have been Foreign Institutional Investors (FIIs). They have collectively put in hundreds of billions of dollars in India. When they sell aggressively, the market goes down. Their selling has been severe over late August. A possible slowdown in China hurt investor sentiment world over, resulting in a huge sell-off in equities across the world.
 
On just one day (24 August 2015) FIIs sold Rs5,142 crore worth of shares. For the month, as much as Rs9,140 crore has been withdrawn by FIIs. This has been the highest outflow since June 2013, when Rs9,300 crore was withdrawn from Indian equities. If buying by FIIs signals good times for the market, surely means selling by FIIs would mean bad times ahead? 
 
“Periods like now where FIIs are selling aggressively are the best times for long-term investing,” suggested Sankaran Naren, chief investment officer, ICICI Prudential Mutual Fund. Moneylife decided to take a look at what happens when FIIs sold aggressively in the past 15 years. We did a simple adjustment: the net inflows and outflows of FIIs in the past years are adjusted to today’s prices, assuming an inflation rate of 7%. 
 
There were 17 occasions when FII outflows were greater than Rs7,000 crore in a single month. Had you invested in any of these months your average return would be 14% over one year and 16% annualised over two years. In the 14 three-year periods after an outflow of Rs7,000 crore, there was not a single period of negative return and an investor would have gained an average return of 11% annualised. But average returns is not what you should focus on.
 
 
Taking the market valuations at the time into perspective, the best forward returns have come at a time when the Sensex trailing price-to-earnings was under 20. In October 2008, when FIIs sold as much as Rs22,000 crore, the Sensex PE fell to a low of 12 times. The forward returns were spectacular: 62% over one-year, 22% annualised over three years, and 15% annualised till date.
 
However, a few months earlier in November 2007, when FIIs sold over Rs7,000 crore, the market PE was as high as 26 times. Investors who jumped in at that time would have been disappointed. The Sensex was reduced to half its value a year later and returned a mere 4% annualised till date. Similarly, in six out of the seven occasions when the Sensex PE was above or equal to 20 times, the returns were negative over a year. Poor returns were seen even over the three year periods. The Sensex delivered single digit annualised returns in all the seven periods when the PE was 20 times or more.
 
 
On 24th August, when the market crashed by over 5%, the Sensex PE fell to 20.37 times from around 22 times a week earlier. Now, after the markets have regained some confidence, the Sensex trailing PE increased to 21 times as on 27th August. Going by the limited history of the past 10 years, this may not seem as attractive a time to invest. 
 
In short, investing because FIIs have sold aggressively and expecting the market to deliver good returns may lead to disappointment, especially when valuations are high. Aggressive FII selling gives an opportunity to invest and accumulate, but don’t base your investments solely on FII buying or selling. Those investing for long term goals should continue to invest regularly and look for such buying opportunities, because over the long-term, the market would move higher.
 
Years ago, ace investor Warren Buffett wrote: “A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.”  Wide-spread fear seems to have struck once again, though not as severe. It’s time to accumulate good stocks. As Buffet wrote further in his article, “Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up.” 
 

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Huge inflow of illegal money is reason for political parties ducking RTI: Anna Hazare
Anna Hazare speaks to Moneylife on why political parties are unified in opposing RTI Act being applied on them. Excerpts from the interview
 
Moneylife: The centre has filed an affidavit opposing the demand that political parties be brought under the ambit of the Right to Information (RTI) Act?
Anna Hazre: By filing this affidavit the Centre, is keeping the door open to illegal political funding. Some parties have already decided that the political parties need not provide accounts for donations of amounts up to Rs20,000. As of today, many political parties have been accepting donations of lakhs of rupees from big businesses by dividing them into parts, each of Rs20,000. Each of these parts are shown as donations by bogus people. Thus lakhs of rupees of unaccounted money is being laundered. It cannot be ruled out this as the reason for wanting to be from the ambit of the RTI Act. 
 
Moneylife: Why do you think political parties should come under the RTI Act?
Anna Hazare: During the Lok Sabha election campaign, BJP had reportedly promised to bring back black money from abroad in 100 days and deposit Rs15 lakh in the bank account of each citizen. The black money stashed abroad was not brought back. Moreover, it seems attempts are on to allow some political parties to launder the black money by excluding them from the ambit of the RTI Act.
 
India became a republic on 26 January 1950 and thereby the citizens became owners of the country. The citizenry owns the government treasury. Therefore, being owner of the country and its treasury, every citizen has the fundamental right to know where and how the money is being spent. Political parties get many concessions from the government. This means they enjoy public money, indirectly. Therefore, the citizenry must have information about them. This was the purpose for which a number of agitations pressing for the RTI Act were staged in Maharashtra from 1995 to 2002. Maharashtra was the first state to enact the legislation in 2002 and later in 2005 the law was made by the centre too. The question remains unanswered as to why today, 10 years after the RTI Act was enacted, this government fears the misuse of this law.
 
Moneylife: Why do you think, donations to political parties should be audited?
Anna Hazare: In fact, political parties not only collect donations of lakhs of rupees but also get concessions from the government. The pertinent question is as to why special audit of such political parties is not carried out by either the government or the Election Commission? Every paisa that a political party get must be audited. If all organisations and institutions in this country are audited, why should political parties not be audited?
 
Moneylife: Are government’s fears of misuse by people, if political parties come under RTI, justifiable?
Anna Hazare: The central government’s view that the RTI Act will be misused for political one-upmanship is not justifiable. Its real fear is that if political parties are brought under the ambit of the RTI Act, they will have to provide the accounts to the people and would not be able to launder the black money and therefore it is trying to mislead.
 
Nobody will be able to misuse the provisions of this Act if the political parties and government machinery upload on their websites the information on 17 points they need to disclose mandatorily under section 4 of the RTI Act. These 17 points would contain so much of information that once it is disclosed, nobody would be required to seek any further information. Isn’t the government aware about these 17 points under section 4 of the Act? Or is the citizenry is being misled intentionally?
 
Exclusion of political parties from ambit of RTI Act is a murder of democracy. During the election campaign, those in power (at present) had promised time and again that once its forms the government at centre, it would give priority to fight against corruption. Its election agenda too contained this promise. The RTI Act may not have ended corruption. But it has certainy curbed corruption to a large extent.
 
Exclusion of political parties from ambit of the RTI Act at a time when the political parties have become infested with corruption, only shows that the government is overlooking the promises it had made during the election campaign. 
 
Moneylife: But Prime Minister Narendra Modi speaks of transparency in his government…
Anna Hazare: The difference between the previous (Congress-led UPA) government and this (BJP-led NDA) government would have been clearly visible if it had the will to curb corruption. However, even today no work can be done without paying bribe. The fact is that the prices are going up instead of decreasing because of rising corruption. Under such circumstances, what is the difference between this government and the previous government? We hoped that concrete steps would be taken to address problems faced by citizens in their daily life and to curb corruption and price hike. The promises of implementing the One Rank One Pension (OROP) scheme, ensuring that farmers make a minimum profit of 50% over their costs, curbing corruption to some extent by implementing Lokpal and Lokayukta Act, have remained unfulfilled.
 
The government insists on implementing the Land Acquisition Bill that is unjust to the farmers although farmers from all over the country are opposing it. While ordinance after ordinance have been issued to keep this Act alive, unfortunately the Lokpal and Lokayukta Act have not been implemented even though these have been passed by the Parliament. 
 
(Vinita Deshmukh is consulting editor of Moneylife, and also convener of the Pune Metro Jagruti Abhiyaan. She is the recipient of prestigious awards like the Statesman Award for Rural Reporting which she won twice in 1998 and 2005 and the Chameli Devi Jain award for outstanding media person for her investigation series on Dow Chemicals. She co-authored the book “To The Last Bullet - The Inspiring Story of A Braveheart - Ashok Kamte” with Vinita Kamte and is the author of “The Mighty Fall”.) 
 

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COMMENTS

Gunasekaran

2 years ago

POLITICAL PARTIES SHOULD COME UNDER THE AMBIT OF RTI IN A DEMOCRATIC COUNTRY ELSE HOW CAN YOU CALL THE SYSTEM IS DEMOCRATIC AND THIS COUNTRY IS A DEMOCRATIC COUNTRY.

ELSE LET THE COUNTRY CHOOSE ONLY EITHER PRIME MINISTER OR PRESIDENT AND LET HIM APPOINT ADMINISTRATORS IN ALL THE STATES INCLUDING MINISTRIES HEAD OR BY ANY OTHER EFFECTIVE METHOD TO APPOINT AND NOT ELECTED REPRESENTATIVES TO THE STATES AND MINISTRIES.

IN THIS WAY ALL THE ELECTED PERSONS BECOMING RICH OVERNIGHT EVERY 5 YEARS WILL BE EFFECTIVELY ARRESTED.

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