The markets: In turmoil

Just after this year's budget this column said that theEconomic Timesshare index would touch 250 before Diwali. Actually, the share market has been so bullish that the index touched 250 on April 29. But obviously the bulls were in too much of a hurry and since then they have been furiously backtracking. There has been a sharp setback in prices - by as much as 10 per cent in a single day.The fact remains that the market has not been behaving itself for the last few weeks which has led authorities to come down on the speculators with a heavy hand. The Bombay stock exchange has been open only for a day or two in a week for the past few weeks and there have been so many holidays last month that most of the activity has been relegated to the kerb dealings.Kerb prices are not, however, official prices, and do not give a realistic picture of the market. In fact, a realistic picture may not be available for weeks to come as the authorities try to curb excessive speculative activity and restrain the runaway prices. This may take longer than expected - may be even as long as two months - which means that during this period it would be just coasting along.Speculative Spell: The corporate returns have been mixed and so is the pattern of dividends. Roughly about a third of the companies that have declared their results during the last few weeks have done pretty well and have improved distribution. Another third has apparently been marking time doing no better or worse than last year.The rest have not been able to withstand the pressure and though not quite fallen on their face, have just been able to keep their head above the water. The corporate performance has not been spectacular but the bulls have pushed their advantage for what it was worth and have virtually run away chuckling all the way to the bank.During speculative spells, sentiment is affected not by actual results - the bottom line, as they put it - but by extreme optimism punctuated by bouts of extreme pessimism. This is what speculation is all about and which explains the irrational ups and downs in prices. Century Enka is a good example. It crossed 1000 at one stage although a few months ago it had barely touched 600. Tata Steel is another. It went as high as 183 last month and then came down to 166, a drop of 10 per cent in two days.Such violent fluctuations - despite heavy margins and other severe steps - do the market no good but there is always an element of gambling in all stock exchange operations which is generally under the surface. For reasons that are not quite clear, the element has suddenly surged forward and taken a grip of the whole stock exchange business.Small Volume: The genuine investor - if there is such an animal - should stay away from the market at such moments for he is liable to get hurt in the bovine stampede. In fact, there is evidence that he is already staying away and the activity is now mostly confined to a very small volume of the business. According to a knowledgeable source, the number of shares changing hands on any given day is no more than a small fraction of the available equity.However, this small number is traded so frequently and vigorously that an impression is created that the whole market is in a flux - which is rarely the case. The average investor would therefore be well advised to keep away from the turmoil until the markets settle down and the trading has some relation with the actual corporate state of affairs.The markets can be expected to stabilise just before the monsoon, that is, in a couple of months' time. After that, all being well, the market should edge upwards again and touch 250 by Diwali time as predicted earlier.The industry is still not out of the woods, power is in short supply in many parts of the country and, what is even more significant, there are no signs of let-up in prices. Until the situation on this front improves, the surge in share prices should be considered suspect.Published By: AtMigration Published On: Nov 21, 2013 15:01 IST--- ENDS ---

Download App

Get 37% off on an annual Print +Digital subscription of India Today Magazine

The markets: In turmoil

The fact remains that the market has not been behaving itself for the last few weeks which has led authorities to come down on the speculators with a heavy hand.

PUBLICATIONS

TELEVISION

EVENTS

RADIO

GAMING

USEFUL LINKS

PRINTING

WELFARE

DISTRIBUTION

SYNDICATIONS

WEBSITES

EDUCATION