Dark Golden

SENSEX: BLACK, GOLDEN OR BLEAK?

As the recent euphoria in Indian bourses began to settle down little by little, awe-inspiring sprut in volume and dramatic appreciation of scrips both in BSE and NSE caught too many retail investors, short-term traders, FIIs….by surprise. In the wake of Congress-led govt's roaring comeback to power on Monday 18th May'09, what came to pass was termed as "historic", "unprecedented", …..! Some of them, especially the rumour savouring media, went an extra mile to crown the day as "Golden Monday". Within a span of 5 to 6 years, a BLACK Monday left all its dark patches on a series of Grey Mondays, dull Tuesdays, darker Wednesdays, pale Thursdays and hopeless Fridays to enter the domain of light and thereby to emerge as "Golden Monday"! Of course there are sceptics about and they evidently posed a polar contrast. To them, the move hardly has got any leg both from the fundamental and technical perspectives, and put it as "unjustified, unabashed" and "malafied" practice of manipulation. In this article, let's weigh the pros and cons of many faces of the event to find out how golden have been the tint of the prospects of Indian bourses on Monday May 18, 2009.

 

Unable to stand Indian electorates' bold NO, the much-hyped "feel good" factor got bound to take to heels in 2004, so tanked SENSEX like a pack of playing cards.  Here let us take a look how the equities behaved like:

Scrips

Closing Price 14.05.2004

Closing Price 17.05.2004

Change (%)

Infosys

5089.75

4518.80

- 11.22

Wipro

1545.60

1243.50

- 19.57

Satyam Computers

312.50

292.50

-6.40

SBI

516.20

447.75

-13.26

PNB

264.10

228.20

-13.59

ICICI Bank

264.70

236.75

-10.56

TISCO

289.30

262.90

-9.13

SAIL

28.95

23.70

-18.13

ONGC

721.00

627.05

-13.03

IOC

376.30

333.60

- 11.35

HPCL

330.65

314.10

-5.01

ACC

267.50

244.20

-8.71

India Cement

35.70

29.35

- 18.00

L&T

512.50

453.10

 

-11.59

Reliance

477.10

404.30

-15.26

 

So most of the front running stocks could not tank more than 20% on the day what media first nomenclated as Black Monday.  The fact reads mutual funds, FIIs (Foreign Institutional Investors), HNIs, etc. made an unprecedented selling on that day. What this sincerely of yours fails to read is how the desire to sell could spread like an epidemic! Was this across the board selling marked the farewell party of the outgoing government or a welcome gesture to the new incumbent government?

 

Retail Investors little by little got habituated in this uphill and downdell ride of sensitive indexes, as they cruised along braving these waves. As I have told you earlier, rows of Mondays, Tuesdays… Fridays petaled out different seasons with different hues: Black, Bleak, Grey, Dark, Darker, ……, those retail investors bleeded like anything in the name of CRR hike, Repo rate hike, Fed rate hike, rate of inflation, subprime crisis, so many known and unknown scams like wild poisonous flowers, manipulations and consequences (please don't make any mistake to forget Nissan Copper's listing and dramatic sprut and eventually coming down to ground with all the hopes and desires of common people), the illicit child of developed economy (recession), WPI hike (sky is the limit), deflation …. to count the list.

 

However one more Monday that signed across retail investors mind is 22rd May, 2006 when the Sensex tanked 1111.70 points. In the following table let us find the change in prices of the blue chip stocks:

Scrips

Closing Price 19.05.2006

Closing Price 22.05.2006

Change (%)

Infosys

2974.45

2823.70

-5.07

Satyam Computers

666.25

670.10

0.58

SBI

869.10

859.80

-1.07

Tata Steel

504.30

470.90

-6.62

SAIL

76.30

66.60

-12.71

HINDALCO

188.80

176.05

-6.75

ONGC

1288.05

1207.00

-6.29

IOC

500.20

469.55

-6.00

ACC

751.20

726.65

-3.27

India Cement

160.60

149.35

-7.00

L&T

2480.40

2325.60

-6.24

Reliance

978.10

929.40

-4.98

 

It was a ‘close your eyes, point any scrip on the screen, short it and you will gain' day, but it had been a day when strong resilience was also found. Technical Analysts have the say: it was a bounce back. What went on behind the curtain was huge institutional selling and domestic fund (specially the government sponsored funds who by nature are supposed to be at the beck and call of honorable finmin of India) buying. What we came across so far is the political impact on Indian Stock market. It won't be a jumping the gun conclusion if we are to take that our stock market does not only reflect the health of Corporate India and that India which stays in village but also the abb tides and low tides of certain political parties prospects to be in or out of power. We, the Indians, are loyal to our chachiji, mataji, bhaiyaji, currently bhabhiji andin the time to come bhatijaji (if not bhatijiji promising to be the mataji of next generation) led political party out and out. Thanks to this slave like attitude of ours ……

 

Once Prof. H.J.Lasky remarked: the breakdown of capitalism might result not in communism but anarchy from which their might emerge some dictatorship unrelated in principles to the communist ideals. Unlike Prof. Lasky's remark, we have seen the so called breakdown of red forts across Europe. Cold war seized the bipolar world one fine morning became unipolar. The Godfather who put on, so far, the attire of lion king that dies but lives long all on a sudden went across Atlantic. The lion king of yesteryear is now Uncle Sam. And Uncle Sam's way of integrating the chunks (please read different countries) of mother earth in ONE GLOBAL VILLAGE kissed the dust. Tsunami came in the name of subprime crisis. In its wake, dawned a great equalizer: GLOBAL MELTDOWN. And everyone's invited!

 

The recession, the subprime crisis, the geopolitical tensions… are great equalizers so far the questions of plaguing the benchmark indices across the globe go. In India what we witnessed as a 9:55 A.M. – 3:30 P.M. animal, a dark cloud drifting its shadow underneath from Uncle Sam's Uncledom to the land of rising sun thereafter to Kospi, Shanghai, Taiwan, Strait times, Hang Seng, Sensex to the west (viz CAC, DAX, FTSE ….). Uncle Sam's country, one's thought to be a land flowing with milk and honey could no more stand this concept. Thousands of joblessness (poor US job data), the event of glittering gold, if not outperforming the sunshine, one after another banks' bankruptcy like the batsman marching towards the pavilion in an otherwise tinted – prefixed match, the demand supply melodrama of the OPEC countries found the dollar one fine morning in the sick bed. Currencies across the globe gained ground against dollar, so dipped the demand for base metals, copper, lead, aluminum… came the very much on the cards global slowdown in the sphere of capital goods. India with her length and breadth, back and beyond couldn't simply sustain her GDP growth of 9 percent only to be reduced to a meager 4.5 percent to 6.5 percent per annum.

 

In a scenario, when no developed, neither developing, nor underdeveloped countries' economy could stand in pink of health; our country went ahead, atleast through paper works. Understandably, it is justified to take our PSU banks immuned against subprime crisis, as they have got almost zero to nothing to write back home about exposure to that crisis but it is a home truth that each corporate body along with the PSU banks borrowed heavily through FCCB (Foreign Currency Convertible Bonds), ADR (American Depository Receipts), GDR (Global Depository Receipts), and they are found incurring huge losses in this foreign derivative hedge portfolio. So, it's in the open daylight that although the Indian PSU banks have got limited exposure to those foreign funds, they are not directly hit but who is supposed to calculate the indirect impact and thereby to calculate the ROCE (Return on Capital Employed)? Again when our economy comes down from an eye popping 9 percent growth rate to a meager 4.5 percent, don't we think our banking system especially the PSU banks didn't have any contribution. As I have told earlier, Indian economy especially the stock market depends on the health of the government at the centre. To make sure their smooth comeback to power, the government is supposed to announce farmers' loan waiver. Let you put you in the know the cotton seed farmers in Andhra Pradesh commit suicide each year even in the boom time of our textile industry, the people in Koraput, Kalahandi districts of Orissa die each year in good numbers in hunger (even in Amlasole a part and parcel of communist Bengal is no exception) could not make our bhabhiji or her turban clad first slave to wake up and address. But it was election time, dear! the government either to turn a blind eye or a deaf ear to all these problems that made it look like in winter sleep suddenly came out with a sheer benevolence to waiver the agricultural loan and the Indian PSU banks were made the scapegoats. Make no mistake, the banking bigwigs were no fools of first water, they used this instrument of agricultural loan waiver to do away with the paramount NPAs (Non Performing Assets). No wonder, atleast on papers, our PSU banks, once blue-eyed boys of our late beloved mataji exhibited health to the cost of slowing down each loan portfolio. Credit growth, the backbone of Indian REFORMED economy couldn't find much blood to stand erect.

 

Apart from bank, every single sector bleeded in the wake of recession. Hats off to the leader of automobile industry, when their export number almost kissed the bottom, they explored the length and breadth of the country to address their underfed export number. And even to this date while jobs and other money orienting devices fell flat in the United States, Indian automobile industries went ahead with the top gear. Within a span of one financial year, our automobile industry registered an unprecedented growth …. at the cost of IIP (Index of Industrial Production) number coming down by 4% - what do you think, pigs might fly? The upcoming Aishwarya's, Sushmita's, Lara's ….. I don't know how, but they did ….. not only glowed their skin and hair but also give tremendous impetus to our FMCG sector (?). The giant like HUL, ICC, Lakme, Dabur, etc. for the first time touched the ground from their stratospheric flight. Speaking on Baltic drive index, all the players in this sector comprising GE shipping, Shipping Corporation of India, Varun Shipping ...... seemed to stand either on dry dock or on the high seas. One Ramalingam's IT based industries overnight turned into an entity of falsehood to join the ramp along with her US cousin, Enron. Our honorable Corporate Governance sang the high-pitched: AALL IJ BELL! So all is well so far the question of other entities like INFOSYS, TCS, WIPRO, etc. come in the IT space. Their earnings not only dwindled from contract, but also from their dollar-rupee hedge portfolios. Government went on spoon-feeding each sector in the name of stimulus packages. Our pharmaceutical, our sunshine industries, could not provide much strength to the detoriating health of our SENSEX and NIFTY. Here, let me put you in the know that ICICI Bank innovated a separate portfolio in the form of Venture Capital and to bring their dreams see the light of the day, they shaked hands with two giants Dr. Reddy's Laboratory and Ranbaxy but in due course of time the mouse came out of the mountain. Both the venture capitals of ICICI landed without a runway and thereby went ablaze. So it is out and out – ‘CONFUSION HI CONFUSION, SOLUTION KA PATA NAHIN'.

 

In the 80's we saw people from the Opposition Bench made much hue and cry, almost at every street-corner of this country barking on a Swiss cannon. They cry foul over the arms deal, but the clandestine Italian connection could not be brought to books nor could that hush-hush money come to this country. It won't be defaming to divide Indian political system into two categories: (i) scam-hatching blocks and (ii) ever-shouting opposition. History of this sub-continent speaks of ‘ram Raj' i.e. a country governed by God and to the best of yours sincerely's knowledge people of this country often finds the representative of God in the scam-hatching block. Guns, aircrafts, urea may be tomorrow the realty ….. scams are all pervasive! In our school text, we used to go through sentences like – ‘Men earn his bread in lieu of sweat, truth must triumph in the long-run …. and what's not. In those days we were unaware of the colors of bucks but in due course we are made to understand especially through the eyes of economy that bucks are of two colours – black and white. Again we came to know, at times, that this dark coloured bucks have greater muscles than their white counterparts. Back to earth, on 15th May, 2009 there had been huge open interest built up was found both in BSE and NSE and much of them suggested that limited headroom was left. Only legroom could have been found. Thereafter, our bourses remain closed on Saturday and Sunday. The euphoric morning came in golden tint outperforming all the benchmark indices across Asia. On that very day both NIFTY and SENSEX hit twice the upper circuit before you can utter ‘JACK ROBINSON'! The volume in cash market formed only 25 to 26 percent of the total derivative market, which speaks of the so-called investor's real intention and commitment towards our capital market. They were not FIIs, for the latter had been fixed in derivative trade because they took huge short position. Hopefully, the money didn't come from any ABC's pocket on the street. There had been a few DIIs in the game, who either hedge their position or gambled or knew the around the corner people's verdict or …They simply formed 25 percent of the investment. What about the rest 75 percent came from. Finds only one answer: ‘MERA BHARAT MAHAAN'!

 

References:

www.nseindia.com

 

About the Author

Aditya Das

Financial Consultant

jishu_adidas@rediffmail.com

Soumendra Roy

Assistant Professor, Netaji Subhash Institute of Management Science, Delhi

soumendra.roy@gmail.com

 

Golden Sun: Dark Dawn - The Basics (Part One)