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Monday, Oct 26, 2009
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Business Daily from THE HINDU group of publications Monday, Oct 26, 2009 ePaper | Mobile/PDA Version | Audio | Blogs |
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Stock Markets Markets - Outlook Columns - A Ringside View
A file picture of traders during the special session on Diwali. The rally hit the pause button due to lack of follow-up buying. The market last week showed a temporary break in forward movement, but avoided a serious correction. Money flow-dictated softening of valuation, however, did not indicate beginning of any marked downtrend. This week market may move within a range. Parallel moves in profit-booking and fresh investments are likely. According to market intelligence, mutual funds are turning sellers in equities. Investors have preferred to move out of the mutual funds since September. In the absence of new fund offers, mutual funds have been forced gradually to scale-down their holdings. High net worth individuals, corporate and retail investors have also not been aggressively buying even though reported quarterly results have been good. Many have begun booking profits. FIIs appear to be following a mixed strategy. According to an investment advisor, half of his US clients are for fresh investments in Indian equities. But he also sensed a strong discomfort among the other half over corporate governance issues. Higher valuations, coupled with lack of corporate democracy, tend to deter many investors. The Indian equity market is predominantly promoter-controlled – over 55 per cent. In the past downturn, promoters’ grip over listed equity assets has become firmer. On the contrary, mutual funds’ ownership of equity assets came down by about a percentage point to around 3.5 per cent. The ownership of FIIs has remained little over 20 per cent, according to a rough estimate. The discomfort stems from a perception of lack of safety. Some feel that as long as companies produced expected or more-than-expected returns, investors need not bother about the ways of management. Perception varies with risk cost prioritisation. There have not been meaningful examples of activism by institutional investors, whether local or overseas. Usually they exited or did not invest in companies with questionable practices.
Post-global market meltdown and remarkable recovery on Dalal Street, Indian equities are now again seen in the relative risk-return matrix, as was prior to the crisis. A fraction of global money, mostly meant for alternative equity asset investments, has begun to flow in. Only perceivable difference perhaps is that many investors had not become adventurers. However, disproportionate promoter group’s holding continues to be a hurdle in terms of available float in undercapitalised stocks. In six months to one year large capitalised Government-owned companies may provide some answers to the problem of low float. (Responses may be sent to jayanta_mallick@thehindu.co.in) Liquidity flow to set direction of benchmarks Index Strategy: Playing time value to your advantage More Stories on : Stock Markets | Outlook | A Ringside View
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