The Crash( 17.5.2006) and FII activities since then
- Thread starter pkjha30
- Start date
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Hi czar
This is a famous tectics to play on the psychology of doomsday scenario when there is a chance to force more weak hands out of race. This tries to multiply the effect to extract maximum advantage out of a situation.
Let us see one by one the arguments with practical examples as far as possible.
1. If FII has take a stock at 240 and now it is at 340 that's 100 rs upside.
(all assumptions)
in dollar term 240/45=$5.33(at the time of purchase)
340/46=$7.39(at current value)
if dollar moves by 50 paise
340/45.50=$7.47
340/46.50=$7.31
if prices fall by 100 Rs due to sell
240/45.5=$5.27(if prices fall)
Well then they shoot themselves in foot by selling rather than worrying.
2. Yes , Now at this stage there are investors who would have been sifficiently warned. So selling by FII will be met by no Buyer situation at this stage.
Let us see one FII hold 99 shares in a company where outstanding is 200 shares. 70 shares are owned by promoters.That's less than 50% holding but enough to have a say.
31 shares are outstanding. Assume they sell 50% i.e.49 shares.
What happens?
Now either promoter will have to pick up or see a free fall in current situation.
20% circuit breaker for price at Rs. 240.So CMP 192.
Next day same story.CMP 153.6 and retail also join the bandwagon.next day another 20% as all want to sell and czar is not yet coming to rescue.
Why because he is not sure of valuations. so CMP 122.
On day four another 20% CMP 97. By end of day four they are down to 240% .
Assume they are able to sell 50% of the sale quantity i.e.49/2=24 shares.
They are stuck with 50+25=75 shares
at CMP=75*97=7275
at purchase price=75*240=18000.
They manage to reduce the value of holding by 10800 without being able to offload. Just check the statistics of how many stocks hit ciruit breakers in the black days.This is impact cost which will hurt them more . I don't know other operations on options side which would be used to protect their looses. Somebody can throw light on this.
Now the total holding of FIIs in India will be 1% of total fund allocation.They can easily afford to do that and forget their money.These one percent is 100% of any particular portfolio whose value will be zero and investor confidence in those fund manager will be zero. So other portfolio serviced by that particular fund may also suffer. So the domino effect will be devastating to them.
India might be a sober market without them but a growing market with doors shut for them.
3. more than 80% of FIIs are long termers. It has been the underlying idea in my post and always and implicit in my arguments.
4. Hot money, smart money , hedge funds may pull ouy no matter what over the next year when Fed Rate goes up to 6%. The point is how much of FII is constituting of such monies.But then that should be good for the market and other FIIs .
5. Operators entered the market and yes ramped up the prices and exited in May 2006. What we are witnessing is aftereffects, global worries on many counts and trickling of FII inflow. We are ending with net inflow for the first half anf positive inflow for the June 2006. Leaving May 2006 as month of net sell by FIIs. Worst should be over in few days time and it will be the time to go back to basics and invest when money, comfort level, Fundamentals and technicals permit.FIIs are not going anywhere.
In fact if we continue to grow at 8.4 percent and increase our export to USA we will see demand from USA to make rupee stronger. We are yet to take full advantage of Globalisation. China is in trade surplus with USA and they have taken full advantage of their entry to WTO. Our growth lies in our hand. If we stop growing no matter what we do, nobody will come to us.I know that at present we are growing. Few concerns are there including Fiscal deficit, BOP(china has surplus and we are in deficit). These things will have to be tackled head on and one day Govt of the day will be faced with that situation .
But for now let bernanke speak.
Pankaj
This is a famous tectics to play on the psychology of doomsday scenario when there is a chance to force more weak hands out of race. This tries to multiply the effect to extract maximum advantage out of a situation.
Let us see one by one the arguments with practical examples as far as possible.
1. If FII has take a stock at 240 and now it is at 340 that's 100 rs upside.
(all assumptions)
in dollar term 240/45=$5.33(at the time of purchase)
340/46=$7.39(at current value)
if dollar moves by 50 paise
340/45.50=$7.47
340/46.50=$7.31
if prices fall by 100 Rs due to sell
240/45.5=$5.27(if prices fall)
Well then they shoot themselves in foot by selling rather than worrying.
2. Yes , Now at this stage there are investors who would have been sifficiently warned. So selling by FII will be met by no Buyer situation at this stage.
Let us see one FII hold 99 shares in a company where outstanding is 200 shares. 70 shares are owned by promoters.That's less than 50% holding but enough to have a say.
31 shares are outstanding. Assume they sell 50% i.e.49 shares.
What happens?
Now either promoter will have to pick up or see a free fall in current situation.
20% circuit breaker for price at Rs. 240.So CMP 192.
Next day same story.CMP 153.6 and retail also join the bandwagon.next day another 20% as all want to sell and czar is not yet coming to rescue.
Why because he is not sure of valuations. so CMP 122.
On day four another 20% CMP 97. By end of day four they are down to 240% .
Assume they are able to sell 50% of the sale quantity i.e.49/2=24 shares.
They are stuck with 50+25=75 shares
at CMP=75*97=7275
at purchase price=75*240=18000.
They manage to reduce the value of holding by 10800 without being able to offload. Just check the statistics of how many stocks hit ciruit breakers in the black days.This is impact cost which will hurt them more . I don't know other operations on options side which would be used to protect their looses. Somebody can throw light on this.
Now the total holding of FIIs in India will be 1% of total fund allocation.They can easily afford to do that and forget their money.These one percent is 100% of any particular portfolio whose value will be zero and investor confidence in those fund manager will be zero. So other portfolio serviced by that particular fund may also suffer. So the domino effect will be devastating to them.
India might be a sober market without them but a growing market with doors shut for them.
3. more than 80% of FIIs are long termers. It has been the underlying idea in my post and always and implicit in my arguments.
4. Hot money, smart money , hedge funds may pull ouy no matter what over the next year when Fed Rate goes up to 6%. The point is how much of FII is constituting of such monies.But then that should be good for the market and other FIIs .
5. Operators entered the market and yes ramped up the prices and exited in May 2006. What we are witnessing is aftereffects, global worries on many counts and trickling of FII inflow. We are ending with net inflow for the first half anf positive inflow for the June 2006. Leaving May 2006 as month of net sell by FIIs. Worst should be over in few days time and it will be the time to go back to basics and invest when money, comfort level, Fundamentals and technicals permit.FIIs are not going anywhere.
In fact if we continue to grow at 8.4 percent and increase our export to USA we will see demand from USA to make rupee stronger. We are yet to take full advantage of Globalisation. China is in trade surplus with USA and they have taken full advantage of their entry to WTO. Our growth lies in our hand. If we stop growing no matter what we do, nobody will come to us.I know that at present we are growing. Few concerns are there including Fiscal deficit, BOP(china has surplus and we are in deficit). These things will have to be tackled head on and one day Govt of the day will be faced with that situation .
But for now let bernanke speak.
Pankaj
just one question to put here.
We all know that FII's are here to get a good profit on their Investment. Now are FII's are merely here for the dividends that our companies pay them? Certainly not!.
Everyone knows, we are not good dividend pay masters by any standards. We only play the gimmicks of Stock Splits and Bonues Shares.
So, the only source of their (FII) income for their Net Investment is from the valuations. The more the share price zooms the more the profit makes.
When it all goes down the drain, do you all still believe they will stay with us in our homes? I believe they are already making plans to relax in hawaain islands with their looted bounty from indian retail investors.
So, be careful dont jump because valuations are cheap.
Satya
We all know that FII's are here to get a good profit on their Investment. Now are FII's are merely here for the dividends that our companies pay them? Certainly not!.
Everyone knows, we are not good dividend pay masters by any standards. We only play the gimmicks of Stock Splits and Bonues Shares.
So, the only source of their (FII) income for their Net Investment is from the valuations. The more the share price zooms the more the profit makes.
When it all goes down the drain, do you all still believe they will stay with us in our homes? I believe they are already making plans to relax in hawaain islands with their looted bounty from indian retail investors.
So, be careful dont jump because valuations are cheap.
Satya
Hi Satya
You are perfetly right.If all these go down the drain, they will not be sitting in our home comforting us.They would be in Hwaaian Island with few other Indians.
Ther purpose of this thread is to watch them and decide what is best for us.
Had we attached this much significance to their actions we would have been forwarned in April itself.
Jan2006- Rs31521 crs
Feb 2006-Rs7587 crs
Mar2006-Rs.6688 crs
April2006-Rs. 521 crs
May2006-Rs.-7354 crs
June2006-Rs. 909 crs
Valuations are for investing and not for deciding exit. Exit when FIIs are exiting.But don't abandon. Wait for entry.
Pankaj
Pankaj
You are perfetly right.If all these go down the drain, they will not be sitting in our home comforting us.They would be in Hwaaian Island with few other Indians.
Ther purpose of this thread is to watch them and decide what is best for us.
Had we attached this much significance to their actions we would have been forwarned in April itself.
Jan2006- Rs31521 crs
Feb 2006-Rs7587 crs
Mar2006-Rs.6688 crs
April2006-Rs. 521 crs
May2006-Rs.-7354 crs
June2006-Rs. 909 crs
Valuations are for investing and not for deciding exit. Exit when FIIs are exiting.But don't abandon. Wait for entry.
Pankaj
Pankaj
pkjha30 said:
Dear munchi
Tell me who is going to buy when they sell. We can't because we don't have absorbing capactiy. So what happens If they dump without corresponding buying.Stocks will hit lower circuits, meaning no buyers. So they are left holding a paper nobody is willing to buy. Further when they sell, do you think that majority of Domestic players including retail investors will be left behind.
Most likely our MFs would have been exhausted now or would exhaust in double quick time with run on them for redemption.
Finally , When the nimble few have left for other pasteurs , others including FIIs will be left holding a paper not even worth toilet paper. I do not think such a scenario works in their favour.
I don't think they are going to hold any share forever. They will be constantly looking to better avenues and rotate as their assessment of a particular stock changes. Sometimes they would exit in profit and others takeover from them. ( This happened in case of Airtel last year when one FII exited at 240 and another one got ito it, both ending in profit).They just don't dump. If it is a bear market we will see them exiting by the next year end while trying to protect their net worth on Indian Portfolio. So watch their actiona dn their words more closely.Further, if you see, I have expressed opinion on net sale and purchases. Individual buy and sale figures are much higher. In these figures story of individual stocks are hidden --what they are selling and what they are buying without impacting cost. This is a well known fact. Further they may resort to negotiated sale so that prices are not affected. Even exchanges now allow it as a seperate segment.
The problem comes when they sell more than they buy.
Pankaj
Tell me who is going to buy when they sell. We can't because we don't have absorbing capactiy. So what happens If they dump without corresponding buying.Stocks will hit lower circuits, meaning no buyers. So they are left holding a paper nobody is willing to buy. Further when they sell, do you think that majority of Domestic players including retail investors will be left behind.
Most likely our MFs would have been exhausted now or would exhaust in double quick time with run on them for redemption.
Finally , When the nimble few have left for other pasteurs , others including FIIs will be left holding a paper not even worth toilet paper. I do not think such a scenario works in their favour.
I don't think they are going to hold any share forever. They will be constantly looking to better avenues and rotate as their assessment of a particular stock changes. Sometimes they would exit in profit and others takeover from them. ( This happened in case of Airtel last year when one FII exited at 240 and another one got ito it, both ending in profit).They just don't dump. If it is a bear market we will see them exiting by the next year end while trying to protect their net worth on Indian Portfolio. So watch their actiona dn their words more closely.Further, if you see, I have expressed opinion on net sale and purchases. Individual buy and sale figures are much higher. In these figures story of individual stocks are hidden --what they are selling and what they are buying without impacting cost. This is a well known fact. Further they may resort to negotiated sale so that prices are not affected. Even exchanges now allow it as a seperate segment.
The problem comes when they sell more than they buy.
Pankaj
Hi munchi
FIIs are here to make money and not to loose it , in the first place. They see a growth opportunities here which would result in value appreciation of a company where they invest. They are also ruled by same factor as pointed out by Satya GFH , but on a large scale. They have to contend with one more factor, i.e. impact cost, which we are not worried about.
I don't agree that it is a ticking bomb. This assumes that value of a stock remains unchanged but traded on notional value arising out of demand. There may be many such cases but when a company is growing, I think that is not covered in a ticking bomb theory. The trick is to know what is a ticking bomb and what is pineapple (though looks like hand granade).
Ticking bomb ttheory places reliance on manipulation of the stock prices.FIIs will be hurt equally in such cases. I don't think all FIIs behave like nomura or ubs.
Well this appears to be a waiting game.
I remember about Brazil, Aregentina and Maxico. I will post some historical data about their crisis later. Foreign companies suffered a lot and plunged those countries into worst of finacial crisis and they lost billions of dollars in loans and investments. Inflation touched 15000% and withdrawal from banks were banned/limited. This froze FII money also when currency took a tumble their deposit became valueless. This is just what I remember vaguely. I will refresh and tell you. FIIs have learnt a lot from those crises.
Pankaj
FIIs are here to make money and not to loose it , in the first place. They see a growth opportunities here which would result in value appreciation of a company where they invest. They are also ruled by same factor as pointed out by Satya GFH , but on a large scale. They have to contend with one more factor, i.e. impact cost, which we are not worried about.
I don't agree that it is a ticking bomb. This assumes that value of a stock remains unchanged but traded on notional value arising out of demand. There may be many such cases but when a company is growing, I think that is not covered in a ticking bomb theory. The trick is to know what is a ticking bomb and what is pineapple (though looks like hand granade).
Ticking bomb ttheory places reliance on manipulation of the stock prices.FIIs will be hurt equally in such cases. I don't think all FIIs behave like nomura or ubs.
Well this appears to be a waiting game.
I remember about Brazil, Aregentina and Maxico. I will post some historical data about their crisis later. Foreign companies suffered a lot and plunged those countries into worst of finacial crisis and they lost billions of dollars in loans and investments. Inflation touched 15000% and withdrawal from banks were banned/limited. This froze FII money also when currency took a tumble their deposit became valueless. This is just what I remember vaguely. I will refresh and tell you. FIIs have learnt a lot from those crises.
Pankaj
Hi
Its a sad day for me. For last one and half years, I became used to at least four threads
Nifty Fifty
Some Good Steals
New Intermediate uptrend
Teach a man to fish.
NKP, Karthik and Supratik already reduced their postings in their thread. SAINT and AMITBE have also slowly withdrawn. I feel that is the worst tragedy the market crash could have caused.Their writings have great reference value and worth visiting time and again.Their presence made it worthwhile to visit this thread.With these distinguished members leading the forum , The moderator had no problem in keeping to the background. Now he would have to take an active role in leading the forum through difficult times.
Hats off to all the leading lights of this forum.
To continue with our monitoring.
Here is NSE data for FII
FII trading activity on NSE and BSE in the Capital Market segment(In Rs. Crores)
Date ---Buy Value--- Sell Value--- Net Value
28-Jun-2006--- 2059.5--- 2128.96---( -69.46)
And the SEBI
Reporting Date --- Gross Purchases(Rs Crores)--- Gross Sales(Rs Crores) ---Net Investment (Rs Crores) ---Net Investment US($) million at month exchange rate
28-JUN-2006--- 1735.60--- 1846.60--- (111.10)-- (24.50)
FIIs still remain net investor for June but with reduced margin. Unless they sell off heavily in two days they will be marginally net buyer.
The answer to the question of their exiting India can be given in one word-NO. But yes they will follow stock specific stories and will be more chossey.
And Mutual Funds continue to be sellers
Date----Buy---Sale----net
27.06.06---358.01 ---389.33 ---(-31.32)
Today market was almost evenly poised
Advances / Declines for Nifty
Advances 23
Declines 27
On the broader scale there were more declines than advances. That showed underlying weekness
Advances -- 290 -- Declines -- 612 Unchanged -- 32
Nifty closed almost on a flat note.
On global cues
Dow and Nasdaq has opened on a positive note.
All Aisan Indices closed in red with Nikkei being the biggest looser followed by Indonesia.
Europe was a mixed affair with FTSE up by 0.81%. They are still absorbing the impact os Arcelor -mittal merger, EMI rejection of Warner offer.
This is what one of the Fund strategist commented on interest rate rise
``The markets will be volatile over the period of remaining interest rate'' increases.
And
``More important than what the Fed does is what the Fed says about the future of the tightening cycle,'' said Eric Thorne, who helps oversee $2.3 billion at Bryn Mawr Trust Co. in Bryn Mawr, Pennsylvania. ``Any comments that would allude to the fact that the tightening cycle is just about over would be tremendously helpful for stocks.''
Fed has gone into the meeting and only tomorrow night its outcome will be known. Tomorrow will be the expiry of F&O. This week is expected to remain volatile and Global cues are now extremely noncommital or negative.
Another thing that we have to watch is if Bank of Japan raises the interest rate as most companies in Japan are reported to be in its favour.
On a regional basis,India will be a stock specific story rather than across the board rise. New IPOs will feel pressure. Companies will find it difficult to tap the market now. There are some disturbing news about FIIs being allowed to hedge their investment where as our banks are not allowed so. Retail investor will not be allowed to sell immidiately on listing whereas other categories of investors like institutional investora and FIIs would be allowed. These have significant impact ,if implemented. The market will for the retail investors to suffer more losses on these account. They are the main category to bear the brunt of crash.
With such reform proposals I am sure, mrket depth will decrease and FII speculation will be rampant. We would have replaced KP and HM with FII.
But I hope rest of the economy , where real growth lies remain insulated from such political vadalism, and continue to grow further as distances that we have to cover is vast.
Market will go into consolidation range or in downward mode will have to be seen next month only. Few key events will also be out of our ways till August.
Wait and watch is the policy.
Pankaj
Its a sad day for me. For last one and half years, I became used to at least four threads
Nifty Fifty
Some Good Steals
New Intermediate uptrend
Teach a man to fish.
NKP, Karthik and Supratik already reduced their postings in their thread. SAINT and AMITBE have also slowly withdrawn. I feel that is the worst tragedy the market crash could have caused.Their writings have great reference value and worth visiting time and again.Their presence made it worthwhile to visit this thread.With these distinguished members leading the forum , The moderator had no problem in keeping to the background. Now he would have to take an active role in leading the forum through difficult times.
Hats off to all the leading lights of this forum.
To continue with our monitoring.
Here is NSE data for FII
FII trading activity on NSE and BSE in the Capital Market segment(In Rs. Crores)
Date ---Buy Value--- Sell Value--- Net Value
28-Jun-2006--- 2059.5--- 2128.96---( -69.46)
And the SEBI
Reporting Date --- Gross Purchases(Rs Crores)--- Gross Sales(Rs Crores) ---Net Investment (Rs Crores) ---Net Investment US($) million at month exchange rate
28-JUN-2006--- 1735.60--- 1846.60--- (111.10)-- (24.50)
FIIs still remain net investor for June but with reduced margin. Unless they sell off heavily in two days they will be marginally net buyer.
The answer to the question of their exiting India can be given in one word-NO. But yes they will follow stock specific stories and will be more chossey.
And Mutual Funds continue to be sellers
Date----Buy---Sale----net
27.06.06---358.01 ---389.33 ---(-31.32)
Today market was almost evenly poised
Advances / Declines for Nifty
Advances 23
Declines 27
On the broader scale there were more declines than advances. That showed underlying weekness
Advances -- 290 -- Declines -- 612 Unchanged -- 32
Nifty closed almost on a flat note.
On global cues
Dow and Nasdaq has opened on a positive note.
All Aisan Indices closed in red with Nikkei being the biggest looser followed by Indonesia.
Europe was a mixed affair with FTSE up by 0.81%. They are still absorbing the impact os Arcelor -mittal merger, EMI rejection of Warner offer.
This is what one of the Fund strategist commented on interest rate rise
``The markets will be volatile over the period of remaining interest rate'' increases.
And
``More important than what the Fed does is what the Fed says about the future of the tightening cycle,'' said Eric Thorne, who helps oversee $2.3 billion at Bryn Mawr Trust Co. in Bryn Mawr, Pennsylvania. ``Any comments that would allude to the fact that the tightening cycle is just about over would be tremendously helpful for stocks.''
Fed has gone into the meeting and only tomorrow night its outcome will be known. Tomorrow will be the expiry of F&O. This week is expected to remain volatile and Global cues are now extremely noncommital or negative.
Another thing that we have to watch is if Bank of Japan raises the interest rate as most companies in Japan are reported to be in its favour.
On a regional basis,India will be a stock specific story rather than across the board rise. New IPOs will feel pressure. Companies will find it difficult to tap the market now. There are some disturbing news about FIIs being allowed to hedge their investment where as our banks are not allowed so. Retail investor will not be allowed to sell immidiately on listing whereas other categories of investors like institutional investora and FIIs would be allowed. These have significant impact ,if implemented. The market will for the retail investors to suffer more losses on these account. They are the main category to bear the brunt of crash.
With such reform proposals I am sure, mrket depth will decrease and FII speculation will be rampant. We would have replaced KP and HM with FII.
But I hope rest of the economy , where real growth lies remain insulated from such political vadalism, and continue to grow further as distances that we have to cover is vast.
Market will go into consolidation range or in downward mode will have to be seen next month only. Few key events will also be out of our ways till August.
Wait and watch is the policy.
Pankaj
pkjha30 said:
withdrawal from banks were banned/limited. This froze FII money also when currency took a tumble their deposit became valueless.
Pankaj
Pankaj
Regards,
--Ashish
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