Everyday as the clock ticks 9:55 in the morning, my colleague logs on to check out the status of market. Since last few days, he is restless as the market is tumbling non stop. I am no investment wizard but being a Chartered Accountant, I am supposed to know market dynamics and this makes me keep a close tab on market. Every time my colleague screams Market is down 150 points 200 down and so on, I ask him to put his money in telecom stocks, which are my favorites as I am studying their moves closely. I feel this is the right time to invest in fundamentally strong stocks which will recover in a short while as the sensex regains its lost position.

I was taken aback when a mail popped up on my screen from a knowledge forum of which I am the member and it went like this.

Friends,

Perhaps I was the only man who was crying about crashing from last 3 months.

I have given the dates also between 20th July to 12th august.

Now wait for 12000 index first, than below 10000.

Rubbish stocker

I like it when people have a view different from mine as it gives me more room to rethink and revisit my logics. Once again I don’t agree to the projection made by Rubbish stocker and market going below 10000 is absolutely naive idea. We in India over react over trivial issues and exaggerate things to a great extent whether it is market or any other political issues.

At present the shrinking of Indian financial market can be attributed to sub prime crisis in US, FII pulling out from markets and the uncertainty of present government due to hype and hoopla created by Left party. FII are pulling in their money from India due to sub prime losses by hedge fund in UK and Germany. As wealthy investors who had invested their money in these FII are exposed to sub prime crises, the risk is passed on from them to Indian share market. This is one indirect link passing on the burden to Indian share market but the exposure is not so deep and I feel that we are over reacting. As usual all the pink papers are crying loud that sub prime crisis should not be taken so aggressively in India but nobody cares to give a thought to it, at least not the individual investors who move on sentiments rather than facts. Mark my words that sub prime crisis is supposed to hit Indian share market but its impact would be limited.

Once again the shrinking of Indian share market due to sub prime crisis makes me go back to a statement which I am reading since last five years in pink papers Indian markets moves on sentiments. Is this statement really vindicated? I feel it carries good depth with it and we have lived up to it many a times. I don’t disagree to the fact that external and global risks do influence market but the way we are over reacting gives us a punch line of weak and immature market.

In pure management terms, a strong and efficient market is one where the impact of news and information about any foray or mishap is immediately reflected by changes in price of stocks in minimum period. In other words, the net effect of such event is automatically inbuilt in the share prices as the news is made public. In contrary to this, a weak and inefficient market is one in which investors react very sluggishly and it takes pretty long time for the market to react to any news. The best example of a strong and efficient market is US and the one of weak market is India.

We all are aware that investment and research reports are minting money in US and Investment analyst are treated like God in States. The reason behind this is that investors break their head over these research reports before shelling out money for stocks. The ground reality in India is just opposite and majority of retail investors in India bank heavily on grapevine which is termed as news. The so called news is the hype created by riggers in the market and has nothing to do with any information about future plans of the company. Look how they spell it in typical Marwari terms bhai ji news hai iss company ki, share uthaa lo, (There is news for a particular company so you can buy shares). The recipient is not worried about what the news is and once he gets this news, he rings up his broker to buys shares in his name. This goes on and on from one person to another and the chain is created. Ask them how is the sensex constituted and they are all blank. If we leave aside professionals and students, very few people in India are aware that sensex is reflecting the performance of top 30 companies based on some pre decided parameters. As the sensex is down or up, they start swinging with it despite the fact that the company in which they might have invested is having strong fundamentals. I know some of the typical investors who are unaware of the fact whether the company in which they have invested is in red or black.

With the ascent of time, things have changed to a great extent and the intervention of SEBI is making it much and much better. We have a long way to go before we can get an entry into the zone of efficient and strong market.

Going back to the over reaction of Indian share market due to tremors in sub prime loans in US, I would like to sum it up in one line when US sneezes, India catches cold.

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