Posted by: alok | May 22, 2006

Blood on the street….

Black Monday, Black Thursday and then Black Friday. Couldn’t comprehend any reason why we had ‘not-so-black tuesday and wednesday’ What drives the market – Fundamentals or human emotions? Leaving the details of the amount of money washed from the capital market, number of declines and advances, put/call ratio for statistical analysts, let me try to conoct a reason for this blood-shed.

Is it a correction, or as some say ‘much-awaited correction’, or manipulations by big players and/or decision makers, or panic selling, or automatic triggering of stop losses, FII’s packing their bags, hysterical shorting by hedge funds, or contagious effect of weakening asian markets and rising Fed interest rates, Chidru’s (Fin. Minister) statements on taxing FIIs, SEBI cracking whips on brokerage firms, Leftist front becoming powerful, or something beyond human comprehencion, or is it just simple random walk theory trying to prove that investors are no better than baboons….!!!!

When you are not sure, point your fingers towards everything. Think about a person who is not directly invested in capital market (you can find 100’s of them around you). What has changed in his daily life.. he still uses the same toileteries, watches same ‘saas bhi kabhi bahut thi’, goes to the same office, takes the same route, eats teh same stuff he used to do earlier, still talks on his cell. So in a nutshell has anything changed radically in his consumption. NO.
Has India’s exports reduced dramatically, has the prices of goods fallen or has there been a sudden surge of inflation. Has anything changed at demand-supply equilibrium. Again NO. aren’t we using the same currency note. On a global front, has China backed-out from
infrastructure dev. for olympics, won’t Delhi host the commonwealth games, have people stopped wearing clothes, have North Korea attacked US. If nothing of that sort has happened then where have the fundamentals changed?

So was the blood bath because of correction…? if we are saying, its a correction, it means we are saying the market was over-valued before. If that was the case, then we shouldn’t be expecting market to regain its losses in a short span (or unless something changes fundamentally).

Was it a standard business cycle…? If Mark Faber is to be believed… bull/bear phase in the commodity market stays around 20-25 years… and not 20-25 days..!!!! So if commodity market has not changed, it means the consumption of the commodities, demand-supply, and all those ‘so called macro-economic indicators’ (why ‘so-called’ will discuss later) should be stable, and so should the stock market.

Is it just a random walk theory…. very likely No. because I fail to imagin market gaining 1000 points in 4 trading sessions. Becasue random walk would say, there is always an equal probability of market gaining and loosing equal points. So I am the proponent of the belief that “baboons can be be better traders, but no better investors than human being”. I leave that for you to decide, are you an investor or a trader, and accordingly will benefit from being a baboon or a human being.

So it leaves me to raise fingers towards other possible reasons.. FII’s packing their bags, but why the heck..? Fin. Min. has clearly said ‘There are no FII’s traders in Indian Market, they are all investors, so no seperate tax for them’.. but what domestic investors/traders…. its a point of concern, because Mr. Chidru. has kept mum on this, so traders are likely to be taxed at business rates (i.e. 33%) and investors at the capital gains tax rate.

Other possiblity, some of us are concerned about Leftist powers, if you consider West bengal as the most communist influenced state, think Buddhadeb and you may reconsider your views. What about Mr. Sitaram Yechury, .. it could be a reason.

Weak Asian market cues… yes it would explain the fall till thursday, but can’t explain the friday..!!

Finally, is our market highly volatile…? I would have taken that arguement, if our economy was as stable as that of Sudan, or if we were in a war. Yes. we are at war… and I think that war is within, to fight greed…!! If you are not an speculator, don’t bet on directional nature of index. Bet on the fundamentals.. as betting on fundamentals is not gambling.

I have been greedy sometime before, and incurred heavy losses recently, but I think its great to face big blood baths in the early phases of our investment journey. It makes you realise the importance of sticking to basics.

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Responses

  1. […] “Saas bhi kabhi bahu thi” – I don’t know what information the person was seeking out about this soap-opera, but the person landed up on my post “Blood on the street” which talks about the May stock market crash/ Here i was trying to convey TV viewers still had the same tastes and the TV channels wud continue to make the same money. […]


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