Why this is happening? Is it possible to predict the movement of broad market indices simply on the basis of technical analysis or with aid of probability techniques or for that matter with that of quantitative methods.
No doubt, stock markets in the emerging markets like
The resurgence started with the Ben Bernanke’s Feb Reserve rate cut intended to avert subprime housing crisis in US. After that stock markets in the emerging markets stopped looking back. Funds flow continues. As if the phenomenon of globalization suddenly dawned, capital started to find new areas relentlessly. With the gradual integration of financial markets across the globe, financial capital moved around internationally. Being the the essential ingredient of production, it will seek to go where it is best rewarded.
Besides, there is one more factor that might be adding to the dollar flows. The recent surge in crude oil prices made several entities in the west
Front line stocks led by Reliance are the first beneficiaries. Their appreciation in prices fueled Sensex and Nifty to record new highs. I feel in the next round, second rung stocks will go up, though bellwether index may remain more or less at the current level. This is apparent taking into consideration the prices of blue chip stocks reaching their life time highs almost vertically; going forward, upside potential seems difficult unless major surprises surface.
Given the rosy economic fundamentals, Mr. Market will love to play the role of Santa during the current festive season. Notwithstanding our views on the market, it will continue to teach us how to value businesses in the changing scenario and think about market prices.
2 comments:
there is one fundamental question I always have..may be you can answer..who benefits from portfolio capital flows in good times and who they harm in bad times...
Portfolio investments do not come to benefit any country or to harm. They primarily focus on enhancing their profits. They invest in companies where they see potential or when they find shares of targetted companies trading at discount to their instinsic value. Once they find the target price and also feel there is less scope for upward price movement, they get out of the security. OR they withdraw thier investments when they find better avenues elsewhere or due to redemption pressure back home. They bring along with them expert fund managers, who ususally base thier appraisal of securities on modern fianancial theory, which advocates that security markets are efficient and all information pertaining to a company is known to all stakeholders.
These fund managers aid in discovering price of some securities.
Let us take the example of Infosys. Around 1995 when the price of Infosys started climbing after FIIs discovered the value of this company and put thier money into this company. Seveal times they had entered and exited the stock. Today it is one of the best known companies not only in India and acorss the world for its best corporate practises. FIIs have not forced the company to be transparent or comply with the legal requirements in letter and spirit, but they did was discovering a potentail stock when it was not darling for local players. So, if you were holding the shares any time before 1995 of after, irrespective of the per centrage holding of FIIs in Infosys, the retruns have been stupendous.
This is on the postive side.
Lets now take the case of HFCL, a telecom player. Around 1994/95, it turned to be a favourites of FIIs. The price of stock gone up several times. Both FII and local investors purchased and accumulated the stock at exhobitant prices. After a couple of years, the bubble burst. several investors, FIIs as well, lost thier money. Some could manage booking profits.
Of late, several endowments funds like Harvard University Fund, Yale Univ Fund, several pension funds like CALPERS are coming to India for making portfolio investments either directly or thorugh Private Equity funds.
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