FII Outlook of Indian Markets

Everyone knows that the FII are quick at selling off their position in the indian stock markets. Up till now everone only had anecdotal evidence of this. Now we have the latest report on FII movements of the Japaneese Fund Managers in the Indian stock market.

Reports of 31st May shows that the Japanesse investors sold net $ 200 mill to $ 300 mill. The major FII seller were Nomura Capital, HSBC Japan and Meryll Lynch Emerging markets fund. When asked the reason for this selling they said that the Fund is reducing its positions and holding cash for a while. This could be induced by the Global correction witnessed arround the globe from Latin America, Europe to Asia.

Markets: Remain Bearish

The Markets had yet another turbulent day where the indeces went up and down with huge amount of buying and selling. After yesterdays recovery everone was expecting furthur upswing in the markets. Today the Benchmark BSE Sensex closed 249.63 points lower at 10,573 (-2.31%) and the NSE closed at 3,115.53 with 83.80 point (2.62%) decline. The advance decline ratio at the NSE was 437 advances and 471 declines.

Automobile shares like Mahindra& Mahindra and Maruti decline by 6% and 5.1% to 557.

Steel manufacturers like Tata Steel and SAIL declined by 5.6% and 3.8% to Rs. 483 and Rs. 74.

Other big losers in todays market were heavyweights like ONGC (5.89%) and RIL (3.5%). ONGC closed the day at Rs. 1,164.

Textile stocks also declined with Century Textiles and Bombay Dyieng falling by 6% to Rs. 405 and Rs. 704.

The market sentiments seem deeply shaken after the volatility and breadth of fall seen today. Tomorrow we may see even more action because of the settlement day. We may see more margin preassures like we saw on Monday which could take the markets lower. Makny FII who entered the markets at 9,000 - 10,000 level could be seeing their stocks touch the stop loss mark.

Selling preassure is likely to continue which will test nerves of investors for many days. As I have mentioned before the investors must remain calm and look ahead for long term gains.

Global Comparison of Corrections

Indian stock markets have seen huge corrections in past few trading days. This is no reason to panic because in the last five trading days the Global especially the emerging markets have seen sharp corrections. The Indian Stock market just saw close to 2000 point correction. According to Investment Guru's like Mark Faber the recent uptrend in the commodities market an the Emerging markets was hype driven and would soon see a big correction. For Indian stock markets his outlook was positive in long term but in short term a correction of 20% to 30% was inevitable.

Within a week the markets showed huge correction. In the comodities market the gold slipped from 26 year high of above $730 per ounce to $640 per ounce. The silver from $14 per ounce to $12 per ounce. The Aluminium and Copper markets also followed, falling from $3,000+ per tonne to $2,700 per tonne and copper from $8,000+ per tn to $7,600 per tn.

The Indian stock markets has seen huge declined is past few days with almost every single share declining in the major indexes. Take a look at how other emerging markets have also declined confirming a global downtrend.

Russia 12%
India 11%
Brazil 7.3%
Japan 4%
Korea 5%
Taipei 5%

It is very clear that the downtrend seen in the Indian stock market is in line with what we are seeing arround the world. The long term value investors should have nothing to fear. The best thing to do in this type of market is to keep cool and stick to the stategy of long term value building of portfolio. Panic selling will only result in further losses.

Sensex Biggest Ever Fall

The Sensex fell 1,111 points in the intraday trading today. This is the biggest ever fall, after the 826 point drop of thursday. The biggest reason for this fall is the open interest position that was created by the brokers. After a decline of arround 500 points 11:30 the market plunged to 9,829 at 11:55 crossing the 10% circuit breaker. The trading was stopped for one hour and the investors & brokers kept on speculating that the next circuit breaker of 15% would be hit very soon. Panic started to creep into the minds of investors as they watched their hard earned money disapear. The SEBI charimar Damodaran came in and told everyone that there is no Liquidity problem.

One hour later when everyone was expecting further blood on the street the market took a spledid change. Within few minutes the market started trading above the 10,000 mark and at the end of the day things settled at 10,481 point or a fall of 460 point. This correction was very much expected by everyone but no one could have imagined that it would happen in such dramatic manner.

IPO Watch: Reliance Petro IPO

RPL has attracted many investors who are willing to invest for long term in the company. The Stock Holding Corporation of India (SHCL) has said that many small investors have opened a demat account only to subscribe to the issue. According to Dr. Kislay Kishore, head of business development at SHCL close to 50,000 new demat accounts were opened during the last few months and around 25% would be due to the RPL issue.

The IPO's grand success could be measured by the number of applications that it recieved. The IPO of NTPC held the previous record of 14.2 lakh applications. The RPL IPO is over subscribed by 51.47 times and got the largest ever application of 21.3 lakh. The book size of the IPO is 1,43,500 crore, which is double of the previous highest book size of ONGC at Rs. 72,000 crore.

Sector Watch: IT

The IT sector has underperformed the Sensex in FY06. But hopefully this is set to change next year.

In the past three years the Sensex has given a return of 295% in comparison to the 297% return of the BSE IT index. But in FY06 the IT industry was only able to give a meager return of 51.9 % compared to a spectacular 82% by the BSE Sensex. This underperformance of the IT sector was due to the lower profit margin and overall expectation of sub-par performace.

Major results for this year have come out and the numbers do their own talking. TCS showed 36% sales growth to Rs. 13,252 crores with profit growth of 50% to Rs. 2,956 crore. Infosys posted a sales growth of 33.5 % to Rs. 9,521 crore and profit growth of 30% to Rs 2,458 crore. Wipro registered 30% sales growth to Rs. 10,603 crore and profit growth of 27% to 2,309 crore.

The topline growth next year would certainly be higher than the FY06 figures. TCS and Infosys have given guidance with strong margins. Eventhough there are some concerns over the impact of rising salary costs over the margins. But strong demand for the IT industry would continue next year and IT could very well be the hottest sector in FY07.