The Bullish Indian market and the aftermath…

The Indian Sensex (Index) has risen by more than 2.5 times in the last 2 years from 5,000 levels to 12,500+. However the last few days have seen a very steep correction with the market correcting by more than 25%. To witness a lower circuit (selling freeze) on the Index is rare.

While, many factors have been used to explain this rise in the Index, I have a few other reasons for this rise in the indices apart from the Chidambaram game:

The rising Media Reporting
In the past few months there has been a general rise in Business/ stock market reporting in the Media. While CNBC was earlier one of the only channels of late we had a number of channels like CNBC Awaaz,  NDTV profit, Zee business  etc. also the Leading English dailies have increased the proportion of business reporting from just one page earlier. The New launch DNA has a complete business supplement with its daily and Hindustan times is to come out with a new business paper. Programs like Saas, Bahu and Sensex speak about the hype of stock market themselves.

Trading is just a click away
While, previously before the demat of shares was a tedious task involving a lot of paper work and transfer of certificates, which kept it away from the reach of common man and too difficult a process for the young graduates/just-joined-job youth. However, with the launch of a number of e-portals of the likes of Icicidirect, kotakstreet, India bulls, Share khan etc. it has taken investing to each and everybody. The latest advertisement of one click IPO investing is a proof of the ease. While, the ease of investing is positive, it lures a lot of people who would have otherwise not invested and who do not understand “What a share is?”.
The ubiquitous mobile has made the stock market quotes not confined to the Bloomberg or the Television screen but brought it into the hands of the investors. Airtel (Bharti) had recently launched Portfolio Tracker on the mobile, in association with BSE.

It is pouring Mutual funds
The recent Bull run has seen a record of sorts in both new MF schemes launch and money raised. This has been easy due to the great results posted by the mutual fund schemes due to the vertical rise in Indices. However, all money invested come with a disclaimer that “Past performance does not guarantee future Results”.

Reliance Mutual Fund recently created a record of sort by mobilizing 5,700 crores. This beat the earlier record of Rest. 4,472 crore raised by UTI Equity, formerly UTI MasterGain during the 1992 stock market boom. Prior to Reliance SBI MF’s blue chip fund had collected 2,800 Crores.

Most of the MFs have been at a loss to garner such huge collections, at high index levels were forced to invest a) regulation does not allow them to hold cash for long b) they are themselves not sure where are the markets headed, and they rather invest and later blame the index levels in case they fall c) no MF manager got thrown out for investing in the bluest of blue chips, in spite of earning low returns and therefore all the money garnered was deployed in the indices resulting in further propping of stock levels.

Every investor looks for Absolute profits, it does not matter if the MF outperformed or underperformed the Index. While, MF managers were keen enough to ask investors to tone down   their expectations of returns, nobody stopped from raising more cash (as it is part of their performance bonus). Lack of proper alignment of incentives can cause a lot of irrational behavior.

Investment strategists have run out of ideas…..
Also, recently most of the MF houses have been in close competition in vying for the Numero Uno position in terms of funds under investment. There have been at least 2-3 new schemes launched by each of the fund houses. The proposed investment strategies for investment of theses schemes have been anything from Lifestyle, Rural, Blue Chip, Contra, Infrastructure, Services, Commodities, Special situations and Media & Entertainment.    

Retail Brokerage on the rise……
With stock market Euphoria  cometh the interest in Brokerage firms. The Indian capital markets are seeing enhanced interest in participating not only in the stock boom but the business of brokerage which is known to benefit the most during periods of Euphoria. While, India Bulls, Indiainfoline, & Emkay share & stock brokers have recently tapped the Indian markets for capital, there are a few others in like Multi-commodity exchange and Steel city securities.
Some of the brokerages have also seen private equity interest with private equity firms picking up stakes in SSKI and Motilal Oswal. While these are definite signs of the rising euphoria nobody captures this phenomenon better than Adam Smith in his book “The Money game” which I have quoted in my earlier blog.  

The Analyst race…
The Euphoria in the markets has been followed by mushrooming of brokerage houses, analysts and investment advisors with names ranging from ABC to xyz advisors. The new analysts with experience of 2days-2 years are falling head over heels in making obscene projections and obscene targets, with the only way to get heard on the street being different. The behavior of the big brokerages also has been similar. Off late have seen research reports with DCF projection for 20 years, Terminal growth rates of 6-8% and P/E multiples of 50’s and 100’s.  
A case in point is the retail industry where the metrics for valuation of Enterprise value per square foot has surpassed the financials, with no comparison how much money the square feet makes. The land banks of the real estate companies are another weird case. I am yet to see a report where  the blue chips like SBI, BHEL, Indian Oil  and BPCL will be valued for their land banks and not for their business, but I am sure somebody is thinking about it.


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