The Hindu Business Line : Stock market on a high — Lack of euphoria, a sign of maturity

The Sensex crossing the 14800 mark on Tuesday hardly sent retail investors into a tizzy. Why is this so, asks RASHEEDA BHAGAT, seeking the opinion of well-known market players and brokers on this new phenomenon.

Just another number, or so investors seem to think of Sensex touching a new high. — Paul Noronha

As the Sensex makes a rather quiet but sure journey to the 15000 mark, there is a surprising lack of euphoria in the equity market in Mumbai, which had gone into a tizzy when the index had crossed the 10,000 mark for the first time, on February 7, 2006. That it has taken it just a year and a few months to come within striking distance of 15000 — it crossed 14800 on Tuesday, recording a new high — has not really sent investors dancing on Dalal Street.

Why is this so? Is it because retail investors have not really made money as it is the large-cap stocks, such as L&T, SBI and Reliance Industries, that have contributed their bit to take the Sensex up?

“If investors have not made money in such a market, when will they? I would go as far as to ask if they will ever make money out of equity if they can’t benefit from a bull market such as the one we have seen,” said a high-profile equity investor from Mumbai, who wishes to remain anonymous. He himself has made a fortune from equity, and adds that all the “long-term investors” he knows have also made “good money”.

The lack of euphoria he interprets as “a sign of a market where the true top is still far away; I believe there is still a lot of room left for the market to go up. While the market will correct, as it ought to, the outlook is very good,” he adds cheerfully.

More upside seen

Mr C. J. George, Managing Director, Geojit Financial Services, agrees that the market still has some strength left. “I don’t think this is an overheated market, and the new highs reflect the inflow of funds into the market. I also find that this is not speculative money but from genuine investors coming into a market that is stable.”

He is actually happy that the hype surrounding the Sensex crossing 10,000 and then 11,000 is missing. “I’d say that whenever you see euphoria in the market, you should sell and get out. So, the absence of euphoria is a good sign.”

As for the behaviour of his investors and the kind of questions they ask or the advice they seek, Mr George says: “At the level of 10,000 and 11,000, the Sensex did see some selling. But currently, at this level, people are not selling, and some are even buying. By and large I see no pessimism among investors.”

So is he surprised?

“Yes, I’m a bit surprised.” Also, he adds, the market is being kept stable by the regular flow of funds, both from foreign and domestic investors. About 15 per cent of Geojit’s investors are NRIs, most of them from the Gulf region, and many of them are buying. On the sectors they are interested in, Mr George says: “It is not sector-specific investment; I find them going in for large-cap stocks and companies that are fundamentally sound.”

On the direction of the market, he says: “The market is not discounting what there is today or was yesterday, but what there will be in the future. The classical theory is that the value of a stock at a given point of time is the value of future earnings. So the earnings potential is higher in India, and that is recognised by global investors. That is why they are buying shares even at higher levels, because they believe Indian companies can grow even at these high levels.”

He agrees that the strengthening rupee will certainly impact the margins of IT companies and exporters. “But, then, let us also think about people who are importing; they are going to benefit. Moreover, the level of confidence the strengthening rupee has generated among NRIs is huge. They have been parking their money in euros and pounds and dollars. But now the rupee is strengthening, and they are proud of saying, ‘I am an Indian and I have confidence in the Indian rupee’.”

Mr Motilal Oswal, Chairman of Motilal Oswal Securities, Mumbai, says the absence of hype and hoopla this time around, as the Sensex cruised past the 14,800 mark, “is proof of the kind of silent development happening in the Indian capital market…not only the capital market, but also in India as a story. Call it the confidence level or feel-good factor, but I find positive vibes everywhere.”

Reasonable expectations

He adds that not only has the Indian equity market become more mature, it has also acquired more depth as money flows in from both international and domestic investors.

On the confidence level among retail investors and the kind of professional advice they are seeking, he says: “The confidence individual investors have in the Indian equity market is rather high, but we are giving them a conservative estimate that now, with the market being at an all time high, they will have to aim for reasonable returns — of 15-20 per cent — rather than the phenomenal returns of the recent past. I find the unreasonable expectation that ‘I want 40-45 per cent return from the market’ is not there among most investors; they are reasonable, realistic and prepared to invest for the medium or long term.”

Mr Oswal adds: “Going forward, my sense is that the market will remain in positive territory.” On corporate earnings, too, he feels that we are no longer likely to see growth of 40-45 per cent; “We should expect 15-20 per cent growth in Indian companies, because the base is now much higher.”

The sectors that his brokerage is positive on include banking, cement, steel and infrastructure. “One thing is clear, for long-term investors, the Sensex level doesn’t matter, but the traders will have to keep their stop losses in place.”

On institutional investors, he says the long-term investors have made “really huge money from the Indian equity market and for them it does not really matter what happens in the short term. They will look at macro factors and are really confident about the economy and the corporate sector.” Hedge funds, of course, will “keep looking at short-term opportunities. They will make quick moves and try and capitalise on every move of the market; for them the long term doesn’t matter.”

Low volumes

But this doesn’t mean that all is hunky dory in the world of Indian investors. Mr Nitin Shah, a Mumbai-based broker says that if not too many people are celebrating the new high in the market, it is because “in the investor community, a lot of investors and traders are really scared. In the last two months there have been two marked periods of volatility, which have left them really afraid.”

And, he adds, though the Sensex has touched an all-time high, “the volumes are still low. For an all-time high, you should also see huge, if not all-time high, volumes, which are just not there.” But Mr George of Geojit sees a silver lining in this. “If the media has not gone to town, and if this time around we’re not seeing that kind of a rush to broking outlets and huge crowds of investors/traders, this is actually a healthy sign.”

Mr Shah has no reservations about the future course the Indian equity market will take. Giving an example, he says: “The kind of environment of job security that we see today in India has never been there before. People have good jobs and are earning good money. Even the watchman of a building is not insecure about his job today. He knows if he loses that job, he can find another one tomorrow.”

If not many voices on Dalal Street are urging caution or pressing the panic button it is because good money has already been made.

Mr Sanjeev Patkar, Head of Research at Mumbai-based Dolat Capital, which services only institutional investors, says such investors have made money and “many of them are holding cash positions in low double digits. They are waiting on the sidelines and if any stock corrects by 8-10 per cent they will be buyers.”

What would be his advice to investors?

“Actually, these are very, very confusing times, because valuations are not cheap at all. But I would say that there will be some overflow into relatively beaten-down sectors such as cement and IT, so opportunities are still there.”

But reserving the last word for Mr George, let’s take a look at what women investors are doing.

Last year he took the initiative to start retail outlets exclusively for women, despite advice from his colleagues that these would not be profitable as women would make very small trades. But a year down the line, Geojit’s Kochi branch for women is “doing extremely well. It has turned out to be a good, profit-making branch, and a lot of women are coming to invest and trade here. They are reading, discussing and then investing. After we started the Branch, the market has also been good, so they have made good money,” he says.

Response may be sent to rasheeda@thehindu.co.in

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