Finance Friday: NIFTY at 5000, But is the rally here to stay?

For all the euphoria in the Indian Stock Markets, one might be tempted to believe that the investor confidence is returning for good. The confidence is indeed returning but not from investors of all kinds. The recent rally has been hugely lead by overseas investment or FII’s (Foreign Institutional Investors) as they are called.

Overseas investors have poured Rs 43,837 crore (USD 9.05 billion) into the country’s stock markets so far this year, reflecting confidence of foreign funds in the Indian equity markets.

At the close on Wednesday, overseas investors were gross buyer of shares worth 4,17,121 crore and gross sellers of stocks valued at Rs 3,73,283 crore, resulting in a net flow of Rs 43,837 crore into the stock markets so far this year, according to the data available with market regulator Securities and Exchange Board of India (SEBI). Significantly, the Bombay Stock Exchange benchmark Sensex has gained nearly 73 per cent so far this year.

The National Stock Exchange barometer Nifty touched 5000 level on Thursday for the first time in more than a year. Global fund houses made a net investment of Rs 3,564 crore so far in September, according to the SEBI data.

Now, when we say that this is a welcome move and signifies the positive health of Indian Economy, it is not without its own consequences.

Sure, the FII investments matter a lot when it comes to seeing the markets having a bullish run, but lets not forget that FII’s are the ones who are responsible for the long bearish runs too like the one last year.

For the record, the overseas investors had pulled out a hefty Rs 52,986 crore (USD 11.9 billion) from the local stock markets last year on the back of the global economy slowdown leaving the markets reeling in RED. What followed that turned into a market mayhem with Indian Benchmark Stock Exchange losing more than half its value.

The retail investor saw his wealth completely wiped out in no time. Moreover, the enormity of the crash made some retail investors end their tryst with the Stock Markets once and for all.

The retail investor never invested in the markets at 8k-10k levels since he/she was looking for a bottom. But, then its other matter that the bottom never came and can never be predicted. When the markets started their upward journey it was felt that the retail investor will jump the foray. But the recent overseas investment data by SEBI points otherwise. The chunk of the investment has come from the FII which to my knowledge are more focused on Profit Making than Capital Appreciation.

I say that in BOLD because that is one reason why the rally is not going to hold for long. With the markets rallying like they have in recent times, it is about time that the Selling pressure starts emerging. The profit bookings will be seen across sectors keeping the market range-bound at 4.5k-4.9k levels. Moreover, with huge rallies in the market especially in the reality and infra space, we might see the FII’s cashing their investments for big profits – and then we are back to square one – in red !

So, if you think that the Stock Markets are headed only one way(the GREEN highway), be prepared to suffer some roadblocks. A long term investment strategy coupled with cash in hand might as well be the way to walk the rocky roads of the Indian Stock Markets.

What is readers opinion? is this Stock Market rally here to stay?

[This Finance Friday post has been written by Ankit Agarwal, an ERP Consultant by profession, a wannabe entrepreneur and stock market stalker by passion]

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Author: Arun Prabhudesai

Arun Prabhudesai is founder / chief editor at trak.in. He jumped the Entrepreneurship bandwagon in early 2008 after a long 13 year stint in I.T Industry. You can follow him on twitter @trakin or get in touch with him at admin-at-trak-dot-in or 91.9822575676.

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Tagged as: Ankit Agarwal, benchmark Index, FII, FII investments, foreign institutional investors, Indian-Stock-market, investor confidence, market mayhem, national stock exchange, Nifty, overseas investors, retail investor, retail investors, SEBI data, securities and exchange board of india, sensex, shares, stock markets