India: Market Antics At Their "Best"

by: Equitymaster

"An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return." This was how Benjamin Graham defined 'investment'.

And investment is what participants in equity markets ideally look for. However, the erosion of capital and swift displacement of blue-chip stocks from their multi billion dollar market capitalisation, the world over, seemed to have given jitters to the most conservative investors.

If Mr. Market’s antics over the past few days have not bothered you or challenged your faith in fundamentally strong companies, you have every reason to be very pleased with yourself. That is because even the gentlemen at the helm of affairs of states and financial conglomerates have not managed to do so.

The entire week gone by witnessed central bankers and governments the world over trying to soothe the nerves of investors. They promised every bailout under the sun, offered to nationalise banks and inject billions of dollars of capital in the liquidity strapped financial system.

The Reserve Bank of India in two calibrated steps reduced the CRR (cash reserve ratio) by 1.5%, the first such reduction since 2001. The SEBI offered to please the FIIs by inviting even the unregistered entities to Indian markets once again.

Nevertheless, the tremendous volatility that followed saw stocks across the world defy every logic. Mr. Market also displayed his antics by playing with the emotions of investors that seem to have become vulnerable to the most atrocious rumours. The latest one being, ICICI Bank going illiquid due to its investments abroad, despite the RBI assuring of the bank’s capital adequacy ratio [CAR] being fairly above the minimum requirement.

The stock at one point lost one fourth of its market capitalisation in a single day. The rather disappointing August IIP growth number of 1.3% (one of the weakest in several years) as against 10.7% in August 2007 also played havoc with investor sentiments.

Crude oil prices corrected by 12% during the week and dropped to a 12-month low of US$78 a barrel. Even the serious disruption in production in the Gulf of Mexico from Hurricane Ike has not halted the decline in crude prices.

The Gulf accounts for 25% of US oil and 15% of US gas production. Over 40% of this capacity is still shut. It doesn’t matter because the decline in demand for gasoline in US is now spreading to Europe and China could be next. If that happens, crude oil speculators too might need a bailout package! 

Gold prices strengthened during the week as investors chose to shun all other asset classes and invest in the yellow metal for safety of capital. However, the commodity shed gains on the last day by as much as 7%. The demand for the metal is expected to remain strong with volatility in asset classes and currencies the world over offering little solace to investors. Also, the onset of the festival season will keep the yellow metal in favour.

Amongst global markets while Japan, France and Germany were the biggest losers, shedding in excess of 20% of the market capitalisation on their benchmark indices, the Korean markets were relatively less affected.


Net fund inflows (Rs m)
  FIIs MFs
3-Oct (10460) (3428)
6-Oct (11,214) (2,311)
7-Oct (5,481) (3,068)
8-Oct (8,477) (1,185)

Movers and shakers during the week
Company 03-Oct-08 10-Oct-08 Change 52-wk High/Low Change from 52-wk High
Top gainers during the week (BSE-A Group)
Ranbaxy 264 292 10.8% 614 /236 -52.4%
Top losers during the week (BSE-A Group)
Indiabulls Securities 36 20 -45.4% 0 / 0 NA
Bajaj Fin serv 352 196 -44.2% 0 / 0 NA
Welspun Guj. Stahl 250 140 -44.0% 538 / 135 -74.0%
Housing Dev. Infra. 163 93 -42.7% 1117 /90 -91.7%
Renuka Sugar 98 62 -36.8% 142 / 61 -56.4%

The forthcoming weeks will test the nerves of investors as their favourite companies display their resilience or the lack of it to economic slowdown and hostile business environment.

There is enough evidence in history that an investment during a bear market has led to some of the biggest wealth creation over a period of 5-6 years. But these returns have come with their fair share of pain. Someone has rightly said that in investing, one does not need great intelligence. An average intelligence supported by an iron stomach will do the trick.

The imperative for you, the long-term investor, is to arm yourselves against the hubris that too much of money creates. The idea is to stay away from greed and get over the fear factor. Invest within your means. Keep saving - and investing. When the cycle turns, and it will, you will be glad to have pulled the trigger.