Monday, November 13, 2006: Either overseas Indians are still
unsure about the strength of their home country’s economy
or they’re tending to behave like speculators and not investors.
In any case, reports of NRIs jettisoning holdings in the Indian
stock markets are surprising. The Financial Express recently reported
that in September and October, NRIs were net sellers at Rs8.77
crore and Rs7.31 crore, respectively. Earlier, in May, when the
benchmark indices had recorded highs, NRIs were net buyers at
nearly Rs14 crore. In June, too, they were net buyers at Rs10.24
crore. However, they took a U-turn in July by pulling out nearly
Rs24 crore. This is despite the BSE sensex having breached the
13,000 mark and all internal and external agencies vouching for
India’s growing economic strength.
Maybe, it is just exhaustion from the roller-coaster ride that
the stock indices have been offering since early this year. The
Bombay Stock Exchange’s sensitive index of 30 leading shares
started this year from 9,000 and surged past the 10,000 mark on
February 7. It took just around a month-and-a-half more to touch
11,000 leaving investors and traders gasping for breath. By mid-April,
the BSE sensex had touched the magic figure of 12,000. On May
10, 2006, the sensex touched a high of 12,671 before closing at
12,612. Then disaster. On June 14, the bottom fell out of the
country’s stock market, whose benchmark Sensex lost 463
points, as there was a rush of selling by investors following
a meltdown in metal prices as also key global markets. The fall,
the third largest in the history of the Bombay Stock Exchange
(BSE), took the market bellwether to a one month low of 11,822.20
points and evoked memories of black Monday. The Sensex had registered
the biggest-ever fall of 570 points on April 28, 1992, which happened
to be a Monday. It fell by 565 points, its second biggest fall,
on May 17, 2004, also on a Monday.
After reaching a previous high on May 10, the sensex went down
all the way back to 9,500. Small investors, who had jumped on
to the bandwagon just to make a quick buck were particularly devastated.
The recovery since then has been narrower, based more on the frontline
stocks, rather the much more broad-based bull run earlier in the
year. The trigger for this has been a flourishing macroeconomy,
exemplified by a set of stellar growth figures in GDP, industrial
production and exports.
The icing on the cake has been a robust performance by most
of the big guns of India Inc in the second quarter. In particular,
the big three of Indian software, and cellular operators such
as Bharti Televentures and Reliance Communications have produced
sterling results. It’s largely these stocks, plus ICICI
and Reliance Industries, which have been powering the rise in
the sensex. Broader indices consisting of 200 and 500 scrips have
been below their previous peaks.
According to The Economic Times, the long-term positive macro
factors look set to remain in place though there will be short-term
uncertainties such as a slowdown in US growth rates and the uncertain
trajectory of crude prices. The retail investor can do little
about this except stick to systematic investment plans instead
of focusing on the sensex level.
Analysts say the rupee is also influencing the NRI’s decision.
The research head of a domestic brokerage firm was quoted as saying:
It is true that the Indian markets have been termed expensive.
However, for NRIs, the dollar-rupee rate also plays an important
role. The rupee has appreciated by nearly 2 per cent since May
levels. This has also led to profit-booking from non-resident
Indians.
The important thing for NRIs to keep in mind is the inherent
strength of the Indian economy even if the P/E (price to earnings)
ratio of Indian stocks seems on the higher side. Independent experts
as well as government agencies have forecast a GDP growth of around
eight per cent for the next quarter century at least.
It is time that overseas Indians recognised the strength of their
home country for their own good.
SOURCE-The Peninsula
