Bull Market: waiting for the moment of truth.

The recent gung-ho in the Indian stock market reached its peak when Sensex again touched the 20,000 mark. Overseas investors are showing a penchant towards Indian market and pumping money consistently they have infused a record $17.88 billion this amounts Rs 21, 58 crore so far this year so the Stock prices are fuming high and valuation is looking stretched at this point of time .This event has resulted as caution call from all the market pundits because market is looking over heated. Albeit the topic seems quiet clichéd whenever we talk of real economy VS stock market. But it is inevitable to talk about the implications and impact over and again.

Let’s discuss the two facets market vs. the economy. FIIs wave of money has pushed the market towards celebrating figures but for the past few months there has been consistent investment from their sides. Then why such a push this month? Few facts reveal that Indian mutual fund industry and FIIs has been in a betting position in opposite directions.

1. When Sensex jumped from 14,000 to 15,000, FII sold shares (net sales) worth 2372.10 crore while Indian mutual fund companies bought shares worth ` 2891 crore

2. Between 15000 and 16000, FII bought shares worth ` 7307 while Indian mutual funds bought only ` 667 crore.

3. When Sensex moved from 16000 to 18000, FII bought shares worth ` 24,372.3 crore while mutual fund companies sold (net sales) ` 2182.21 crore

4. Between 18000 and 19000, FII bought `7378.2 worth shares while mutual funds sold (net sales) ` 966.2 crore worth of shares

5. Finally, when Sensex jumped from 19000 to 20 000, FII sold (net sales) ` 1281.1 worth of shares while Indian mutual funds bought shares worth ` 1515 crore.

It’s obvious from the above data that Indian MF industry was actually expecting a correction but to their sheer surprise FIIs positive outlook towards Indian market has made them change their exposure strategies. Now they are heftily investing into market to remove the performance hurdles and encash the domestic market opportunities. Hence MF and FIIs together has soared the market .In tandem with market there is a strong appreciation of the rupee as well.

Now let’s have a look on the real economic picture of India. Earlier the current account deficit of Indian was 2% of GDP but it has rose 50 % higher i.e., 3% of GDP. Strong rupee implies good import but discourages export .which results in wider trade deficit. Larger current account deficit can be problematic when foreign investments shrinks and inflows collapse due to some reason. Not only that, foreign market crisis can trigger many other problems of foreign inflows which are always vulnerable.

Although RBI has intervened to curb the liquidity in the market through LAF and increased repo rate n reverse repo rate. It will keep a check by using such monetary policies tools.

Still this bull word creates a situation of quandary for retail investors whether to invest or play caution. Anyways traders will make hay till the sun shines. Till then all eyes waiting for the real moment of truth.

Madhulika vats