Posts Tagged ‘investor community’

Bank deposits, BSE Sensex Move in Reverse Direction

The Bombay Stock Exchange (BSE) market capitalisation and bank deposit levels move in diametrically opposite directions. In an economy that is on shaky ground, bank deposit levels go up, but when there is optimism, market cap goes up, reveals a 34-month study conducted by New Delhi-based SMC Capitals.

The elements of fear and greed (which drive the capital markets) are clearly visible in the trends seen inย the allocation of assets by
investors in terms of cash and stocks. An attempt to compare the BSE market cap levels (over the period starting January 2007), with the aggregate bank deposits in the banking system shows the relative measure of the entire market capitalisation of BSE as percentage of aggregate bank deposits in the entire banking system. This is a reflection of the level of risk appetite in the investor community.

For instance, in January 2007, BSE market cap at Rs 3,779,000 crore as a percentage of aggregate bank deposits was 152 per cent, which means BSE market cap was 1.52 times more than the entire bank deposits at that time, that was Rs 2,485,000 crore.

When the market started recovering since March 2009, the BSE market cap as a percentage of aggregate bank deposits crossed 100 per cent level and at present, these level is at about 138 per cent.

BSE market cap at the end of November was Rs 5,793,000 crore, while bank deposits stood at Rs 4,196,000 crore, data from SMC Capitals shows. Latest data on bank deposits is available only till November.

As the bull market cap kept racing ahead during 2007, these levels of BSE market cap, as a percentage of aggregate bank deposits, have kept rising. At the peak of the bull market, that is by December 2007, these levels reached 235 per cent.

Simply put, BSE market cap at Rs 7,169,000 crore was more than double the Rs 3,047,000 crore kept in bank deposits.

โ€œWhat it means is that the deposits available with sche-duled banks put together can’t even buy half of BSE stocks. This was probably the sign of ‘excess optimism’ in the capital market,โ€ said Jagannadham Thunuguntla, equity head of SMC Capitals.

However, by the time the bear market started in 2008, this level of BSE market cap as percentage of aggregate bank deposits has consistently kept falling. By the time the markets touched the bottom in February 2009, this level fell to 74 per cent.

This means that with the aggregate bank deposits available with the banking system, one can buy all the BSE-listed stocks and will still be left with 26 per cent of the deposits. This probably marked the sign of excess fear in the system, said Thunuguntla. By this time, the BSE market cap was to the tune of Rs 2,862,000 crore, whereas the aggregate bank deposits were to the tune of Rs 3,848,000 crore.

Greed and Fear : Factors that Drive the Stock Market !

fear and greed are the two key factors that drive the stock market :)

Everyone knows that fear and greed are the two key factors that drive the stock market.

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If you talk to any seasoned investors in the market, they would tell you of the stories of how people got carried away by greed and lost all their money in the process.

Stories about people spooked by โ€˜fear factorโ€™ also do the rounds of Dalal Street at regular intervals.

According to a study by SMC Capitals, โ€œthe elements of fear and greed are clearly apparent in the trends of allocation of assets by the investors in terms of cash and stocks.โ€™โ€™

The trend, says the study, can be seen at the levels of market cap and bank deposits in the economy.

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When there is fear among the investing community, the bank deposits go up.

And, when there is widespread optimism, the market cap levels go up.

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โ€œIf you look at investor behavior in the last three years,
the pattern is very clear:

the first year was of over-optimism,

the second was of over-pessimism and

now itโ€™s the recovery period.

This trend is clearly visible if you look at the market cap and bank deposits (or the real wealth),โ€™โ€™ says Jagannadham Thunuguntla, equity head of New Delhi-based SMC Capitals.

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In the study, SMC has compared the BSE market cap from the period starting January 2007, with the aggregate bank deposits in the bank deposits.

The relative measure of the entire market capitalisation of BSE as a percentage of aggregate bank deposits in the entire banking system demonstrates the mindset of the investor community.

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Read the Full Story on The Economic Times

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As IPO Market Falters,Companies Eye New Funds !!

Market falters

The post-listing dismal performance of the initial public offering ( IPO) of public sector power major NHPC Ltd is set to force many companies to rework their fund- raising strategies in the coming months.

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Qualified institutional placements (QIPs), global depository receipts (GDRs) or those shares issued to overseas investors and listed on exchanges abroad are likely to be the most favoured means for these purposes, leading investment bankers said.

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Some of the companies are already planning to revise their issue prices downwards to ensure that offerings will not fall through.

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Oil India Ltd (OIL), which is open for subscription now, is the first to draw lessons from the NHPC episode and revise its issue price.

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OIL has revised their price band to Rs 950- 1,050 per share, from Rs 1,250- 1,400, after the NHPC episode as per few bankers.

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NHPC fixed the price of its IPO at Rs 36 per share last month.

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Though the stock listed on September 1 at eight per cent premium to the issue price, at Rs 39, it closed just 70 paise or 1.94 per cent above the issue price.

Over the last two days, the premium further narrowed to just 10 paise.

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Jagannadham Thunuguntla, equity head of SMC Capitals Ltd, cites heavy selling, coupled with no follow- up buying as the reasons for the lacklustre listing of NHPC.

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NHPC’s IPO price was 30 times its earnings per share (EPS).

“In fact, well- established companies like NTPC are available at much lower valuations. Hence, there was no follow- up buying from the investors on NHPC listing,” Thunuguntla explained.

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Further, majority of the oversubscription is not due to genuine investor interest but is due to the borrowed funding through ‘IPO financing“.

Naturally, all such investors were forced to sell on the day of listing as these involve a lot of interest cost. This resulted in heavy selling on the day of the listing,” he added.

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After the market rebound since March 2009, fundstarved companies started tapping the market.

And when the elections gave a more convincing victory to the UPA combine, the market gathered greater strength.

Since March, companies were able to raise funds to the extent of Rs 21,191 crore through 22 QIPs; and $ 1.88 billion through four GDRs/ ADRs (funds raised from US- based investors and listed in the US).

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However experts maintained that these are the sources of funds for which few institutional investors are to be convinced, rather than working on creating confidence among the whole investor community.

At the same time such companies should have a high corporate governance track- record as well.

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price band