Stock Markets: New Year, New Horizons

It's a great feeling to be back on the blog after a period of one month. Last month had been quite hectic in terms of balancing both the official and personal fronts and alas, the blog suffers. I ended the year 2007 on a devotional note with a trip to Lord Tirupati balaji and the trip was quite satisfying in terms of re-energising for the new year ahead as well as spend some quality time with the family. I wish that I could spend more time with the blog this year and fulfil the aspirations of the readers who often complain of irregular updates and missing investment ideas on the blog.

I wish all of you a very happy, prosperous, fun-filled and an eventful new year and we all wish that the India Inc. too manages to bring cheers on the D-Street. So let's start the new year take stock of the past events and how would they shape the sensex this year.

Year 2007 : Sensex Redefined

The Year 2007 saw sensex raising its bar to record a second highest rise in last two decades of its history. Sensex rose 47.1 % to record a gain of about 6500 points. The journey of sensex from 13786 in opening of 2007 to 20287 at the close of 2007 broke many physcological zinx in the mind of the investors. When 2007 started people were were amazed at the thought of sensex rising to 20000 and yes, it happened. Be it Foreign Institutional Investors, Mutual Funds, the news on P-Notes, Fed Rate Cuts, the sizzling IPO markets,the quarterly results, all contributed to the rise of sensex. The heroes were , of course, the metals, Oil and gas and Capital goods sector. IT, healthcare and FMCG companies failed to impress.

So what's the take on Sensex for 2008 ? 23000, 26000 or 30000 ? Well it would be at the best one's own guess to predict the markets, but there seems to be a concurrence among the experts between sensex closing somewhere between 23000 to 26000 in year 2008. Now you may say that it is a huge gap to play and yes, the markets are all about it. So stop worrying about sensex targets and start picking the probable winners. Make sense ?

Tracking the Masters of the Game

Let us have a look at the FII and Mutual fund investment pattern during FY07 and in January till date and see if it throw up some signs for the year ahead.

The chart above shows the Net Investment done by FII's and Mutual Funds respectively during each month of year 2007 and January 2008 till date. The number throws up some interesting patterns.

  • March 2007 was the only month in the year when FII and MF's sold unanimously.

  • FII's were net sellers in 3 out of the 12 months while Mutual funds were net sellers in 5 of the 12 months.

  • Mutual funds started 2007 with a strong note while FII's started picking up in Feb-07.

  • Major part of FII Investment has come in Sep-07 and Oct-07. Mutual funds were caught selling in these months !

  • Highest buying by mutual funds was done in August-07, while FII's were highest net sellers in this month.

  • Both FII's and Mutual funds have started January on a strong positive note.

There is a notion among the investors that FII's do the fund allocation in the month of January and hence that would dictate the FII strategy for the Indian markets. I think that this conclusion does not hold good. Just see FY07, FII's started January on a weak note and came in real action only by the second half of the year where they did massive buying. So it would be wrong to conclude that January statics hold the key.

Going by what has come by Jan-08 till date, both FII's and MF's have been net buyers. However, one should remember that FII have bought heavily in Sep-07 and Oct-07 and they would resort to book profits as a part of their strategy before moving further in the markets. So from that perspective one can see profit booking in January and February in the markets. However, given the positive outlook on Indian economy and higher probability of deep fed rate cuts in view of credit crisis in US, the Indian stock markets would continue to be a hot destination for the foreign Investors.

Well, I would have to leave this at this stage. I will continue this post and we will discuss the factors that would determine the sensex levels for 2008 in the next post.

To be continued....


KB said...

Hi Soni Sabheb,

Its good to c u back in action....

Wishing you all the best for future.

cheers !

Anonymous said...

Hi Rajesh,

I liked your analysis on FII and mutual fund data..but I feel that it is FII who actually controls the markets and MF's are just copycats..Can you please put similar comparison for retail investor data as investment is stock markets by retail investors has increased manifold and they have also become a force to impact markets....I will come back to read your full post : )


Rajesh Soni said...

Thanks K Factor !

Rajesh Soni said...

Hi Ajay,
Unfortunately we do not have a mechanism yet to track the retail investors trading patterns so it would be diificult to analyse. However, as a general understanding, a lot of retail money is flowing to stock markets as the other asset class does not offer a reasonable return on Investment. Also a lot of credit goes to the IPO flurry which had helped retail investors pour their money in the markets.


Nice reading of posts.