The Hindu Business Line : `Market needs a dose of FII liquidity to boost volumes to earlier levels'

Perhaps for the first time, individual retail and HNI clients have spotted the rising trend quicker than the institutional players, argues Mr Jayant Manglik, Senior V-P, RR Equity Brokers. "One needs to put all this in context — lower appetite for risk, lower trading volumes, rising interest rates — and the trend will be evident", he says. Excerpts.

Some sections that had gone away when the market crashed are coming back. How do you view this?

Contrary to most analysts' views, the market has been on a continuous rise since mid-June. Outstanding quarterly results of companies across the board have boosted sentiments and, maybe for the first time, it has been the individual clients (retail and HNIs) who spotted the trend quicker than institutions. They essentially averaged out their investments. Compared to the earlier part of the year, FII inflows reduced to a trickle and MFs too haven't been too aggressive. This led to low volumes but did not stop the smart individual from identifying the bottom fairly accurately. Now that international markets too are turning supportive, FIIs may yet be back. However, we must remember that as of today, the market may be considered fairly valued. Liquidity will be a major factor in influencing stock movement.

Volumes are pretty much absent. What do you think is keeping volumes from rising?

Yes, volumes have fallen to less than half of what they were till mid-May. Our research has revealed some interesting figures on FIIs. From January to May 2006, it took, on an average, over Rs 500 crore to move the Sensex up by more than 100 points. But from mid-June onwards it has taken just Rs 100 crore of FII money to swing the index by an equal amount.

So while individual traders and investors are coming back, even the large operators are not taking positions till they see FIIs returning. It seems that the market needs a dose of FII liquidity to boost volumes to the levels they were at. Mind you, that's not unlikely, considering that a lot of international funds are sitting on cash at the moment.

What can drive the indices from this level? Conversely, what are the most likely factors that can bring down sentiments?

The main issue really was the quarterly performance of Indian corporates. There were some concerns whether the results will continue to be as good as the previous quarter. But industry has outperformed and exceeded market expectations convincingly. A fair monsoon and stable US interest rates will provide an impetus to FIIs to invest part of their cash in Indian paper. Their recent interest in IPOs is a step in that direction.

Nevertheless, the negatives remain the same. Low volumes, firm crude prices and global risk aversion are worth repeating. Additionally, with the Sensex at 17x FY07 estimated earnings, other emerging markets may seem attractive to international investors. Moreover, there is uncertainty over the impact of interest rates hike on the bottomlines of corporates.

How are brokers like RR Equity positioned to tap the current trends in investment?

Having memberships of all the exchanges as well as being a DP allow us to make available all products to clients. We are focusing on the best available technology to reach customers.

Investing and trading experience needs to be completely seamless for them. The next push is towards relatively smaller centres. These are financially under-serviced. Trained personnel and better research will prove to be important.

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