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Indian bourses extended trading hours by about an hour. However, the volumes in Nifty futures on the first day were one of the lowest ever in the past few years. Indeed, adjusted for one hour’s extra trade, volumes were 40% of what they should have been
Indian bourses have started business at 9.00am IST instead of 9.55am IST. It was also the first trading day of the year and the first day of the January series of derivatives. However, shockingly, market volumes crashed on the opening day.
During the day, total Nifty futures contracts traded were 2,37,231. This was one of the lowest-ever volumes of Nifty futures contracts traded, despite one hour of extra trading. The 40-day daily average of contracts traded over the five-and-a-half hour day is more than double that of today (5,18,184 contracts).
And what about the contracts traded in the first hour? The number of Nifty futures contracts today in the first trading hour were just 50,961 which is lower than what they were on 31 December 2009 (67,680). In fact, there is a reason why the first trading day of the new year of 2010 should have been much higher. A new series of derivatives started today. As a result, volumes in the first hour of trading were expected to go up massively. But the volume during the first hour of trading was poor—extremely poor—by that standard.
Markets have been trading on low volumes in late-December. As on 29 December 2009, the number of Nifty futures contracts traded in the first hour of the day were 44,426 while on 30 December 2009, the number of shares traded in the first hour of the day were 42,770. Since the global markets remained closed on Friday, 25 December 2009, for Christmas and on Monday, 28 December 2009, Indian markets were closed on account of Moharram, trading volumes remained low last week. Besides, most fund managers were on a year-end vacation. The market also remained closed on Friday, 1 January 2010 on account of the New Year holiday.
What kind of volumes should we have got on Monday? Here is an indication. The number of contracts traded in the first trading hour of Nifty futures of November 2009 contract (30 October 2009) were 131,134. This clearly shows that in the first hour of the new series of January, volumes should have been massive. However they were less than 50% of what they were in the November series.
And volumes never picked up later in the day.
So, the extended timing has hardly made any difference to the trading volumes in the early hours especially since all global markets were open after a long gap on 4th January. The reason behind the early opening was to attract back the trading volumes of Nifty futures traded in Singapore. However, the new timings have hardly made any impact on the volumes, despite the New Year and a new series of futures contracts.
As usual, Moneylife’s annual study of wealth creators throws up many surprises. It stresses the need to buy cheap & avoid falling into the trap of purchasing ‘popular’ stocks and points out the role of excessive speculation in pushing up obscure stocks
Moneylife’s annual study of wealth creators of 1999-2009, rubbishes myths about value creation, stresses the need to buy cheap & avoid falling into the trap of purchasing ‘popular’ stocks and points out the role of excessive speculation in pushing up obscure stocks.
The study also emphasises the misplaced notion of buying and holding indefinitely. It points out that the much hyped technology stocks that caught everybody’s fancy in 1999, have actually yielded insipid returns over the 10-year period. Software giants like Wipro and Infosys are nowhere to be found among the top 500 wealth creators, a clear indication that management quality and earnings growth have little to do with wealth creation if stocks have already run up and have turned into market favourites. The simple fact is that if you had bought software services companies in 1999, you would have bought them high and regretted. The wealth creation study appears in the current issue of Moneylife which has hit the stands.
Moneylife’s study also points out that real-estate companies have now already captured the potential for growth, and are slowly on the decline in the wealth creation charts. This is despite the fact that four such companies stand out among the top 10 wealth creators. Their performance has more to do with the lunatic, frenzied spike in realty prices in 2007-08, than management efficiency or company fundamentals over the last decade. Prices shot up too high too quickly, without a foundation to support the upsurge.
Despite the lacklustre show from the pharmaceutical industry, certain pharma companies have made their mark on the charts. Sun Pharmaceutical has done very well with an extremely high compounded return of 76%. Among the smaller stocks, Alchemist recorded a huge return of 84% and Vimta Labs returned 52%.
However, the most notable performance was from the steel, steel products and related sub-sectors. From this sector, 13 companies have emerged among the top 100 wealth creators on our list. Sesa Goa has reaped the benefit of China’s insatiable demand for iron ore which accounted for more than 84% of its volumes in the previous fiscal. Among others, Orissa Sponge Iron & Steel (20th) and Nava Bharat Ventures (12th) have also made much of the boom in the entire steel chain and related products like ferro-alloys.
Engineering companies have gained in the past few years from capacity creations in core sectors like power, infrastructure, mining, telecom and oil & gas. Indeed, 17 engineering and allied sector companies have found their way to the top 100 wealth creators. Kirloskar Brothers (72%), Praj Industries (72%) and Bharat Bijlee (69%) emerged among the top 20 wealth creators.
This year’s list is also witness to the emergence of small- and micro-cap companies, which have trumped some of their larger counterparts. Companies like Shanthi Gears, Orient Abrasives and Electrotherm India have given shareholders a lot to cheer about. On the other hand, many blue-chips are languishing at the bottom of the wealth-creators’ list. India Cements, Tata Tea, Zee Entertainment Enterprises and GTL have provided disappointing returns. Several multinationals have also emerged among the notable value destroyers.
Among these smaller, obscure companies are names that have caught us by surprise. These companies don’t boast great earnings growth, superior management quality or productivity efficiency. Their presence among the top wealth creators is only driven by one thing—intense speculation. Many among these are little known penny stocks that have emerged in the frenzied bull market a couple of years ago. Companies like Ashirwad Capital, Poddar Developers and Master Trust have created robust shareholder returns despite the fact that their sales haven’t even touched Rs1 crore.
Indian bourses started trading an hour earlier from Monday. The real problem, however, is unavailability of a settlement system for brokers and banks before the stipulated time
Both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) on Monday started trading at 9am, about an hour earlier than previous days. This move is expected to increase trading volumes. However, a majority of brokers are still unhappy over this move.
Speaking about increased volumes in Monday's trade, a broker said that usually volumes peak at the beginning and closing of the trading session. Today, the treasury share sale by Reliance Industries led to an increase in volumes.
"Volumes were low when the Sensex was at 8,000 levels, then why was the move (to extend trading hours) not envisaged at that time?" asked the broker.
Stockbroker associations like the BSE Brokers Forum and the Association of National Exchange Members of India (ANMI) have asked bourses to maintain the status quo in trading hours until adequate infrastructure is in place.
ANMI, which claims the support of 850 members, had approached stock exchanges, regulators and the government to look into the extension of trading hours until adequate banking infrastructure was in place.
"The Association is of the view that it is necessary to maintain status quo on the timing, till adequate infrastructure is in place. There should not be any hurry to extend the market timing," ANMI's president EMC Palaniappan had said.
The Association has urged the Reserve Bank of India (RBI) to improve the banking infrastructure, as most of the banks across the country do not have real time gross settlement (RTGS) facility, which is necessary for high-value transactions, Mr Palaniappan had said.
Reflecting the intense rivalry between the BSE and the NSE, both exchanges, earlier this month, had said that trading would start at 9am from 4th January, nearly one hour before the current opening time, inviting protests from brokers and investors.
Typically, banks open their RTGS platform at 9am and bourses used to open for trading at 9.55am. Brokers were using the crucial time of 55 minutes to settle their margin payments. With the advancement of trading hours, this window is now closed for brokers and its effects would be known only after a few trading sessions.
"I don't think transactions with the banking system would be an issue. I believe retail investors, traders and arbitragers are not quite happy with markets opening early," said Prakash Kacholia, managing director, Emkay Global Financial Services Ltd.
According to a survey, nearly 80% of the trading members of the BSE Brokers Forum were against the extension of trading hours while 62% of the members of ANMI felt that extending trading hours could put additional load on the system.
Reacting on the issue, banker PV Maiya said, “Both exchanges are a bit childish. Why should they assume that the banking system or any other agency should bend to accommodate their whimsical game? Any change must involve due consultation with all the parties and not for display of one-upmanship, this is not their private affair."
In October, market regulator Securities and Exchange Board of India (SEBI) allowed bourses to set their trading hours between 9am and 5pm on condition that appropriate risk management systems and infrastructure are put in place.