To put things into perspective at the beginning, India's Capital Markets received an unprecedented $25 billion and more in inflows in the first 10 months of 2010. In the same period China received $82 billion and while Indian WPI and Food related inflation has just started coming off its highs coming below double digits at 8.58% and 14.5%(Food). In the meantime, the Chinese Economy has nearly careened as Chinese government has been trying to tell everyone who would listen as Food related inflation hit double digits and WPI came at 4.4% for the reference data that caused a landslide in China. Our own landslide in the markets is admittedly correlated with China by want of value even as Sensex PE powers on unprecedented growth and $2 trillion in Market cap ( $1.75T + growing). That is we have run out of value picks in our universe of 5000 companies and that is where this interesting phenomenon must find a mention.
The phenomenon is not just the ugly face of a bear operator or ill advised stayer away from Capital Markets looking for the eternal bugbear of the markets just to light fire to it. IT sounds churlish, it is, and it is unlikely it happened. It is a quest for risk premium in our growing Futures and Options segment. What we have seen since July is that every month this play( to be explained verbatim following) is made in the second week of the monthly options series where the indices based puts written or bellwether stock based puts written; even naked out of the money calls bought during the bullish begin of the series are put out mercilessly by concentrated bear action in a single session and then the next week; witness today the act is completed as the bullish fervour of the market/stock is lost midstream after the act of the first week. This month it was State Bank of India , when an opportunity in weaker than expected results cost the markets millions as it lost the plot completely having assessed no hope for the identity stock options or indices in the series even two weeks before expiry. As the derivatives markets score 8 times the cash based turnover daily, the effect is traumatic leading to as today a loss of almost 5% in market cap in the market or INR 3 lakh crores ( $75 billion) in under 5 minutes.
If it can be ascribed to opportunist hot money plays and we are thence proven to be a banana republic I would not venture to say as it seems to be hyperventilating, but that tactic of tackling hot money seriously with FDI taxes could actually be mandated anyway for us to get due power in emerging markets forums and push the envelope of growth to reach 10% and more in annual growth.
IF it can be ascribed to immature markets where only foreigners are now making money, it would be a travesty but the act described above is more of a herd and not of any group of investors only making money. However there seem to be shallow camps on both sides ( the bulls and the bears) with the bulls having somehow found due logical reason to take our markets due north without limitations because of the presence of this pecuniary element from the bears while the bears are so frustrated at not having bought into an earlier rally, and just feeling left out. Market technicals, fund flows and scheduled options pricing models and simulations all fall prey to such patently ill harmonious and shallow tactics deciding the fate of the entire $2 trillion almost daily unless logic is given the due place as king in the mad world of big money.
Posted via email from The investment blog on Post
India
