Bhuvan Bhaskar
The last week was full of ups and downs for the Indian stock markets. Every day the benchmark index Nifty showed either a gap-up opening or a gap-down, if one day was excluded from Tuesday. And on the last three days of the week, the way the index opened with a rise and fall of 1-1.5%, it remained almost the same difference throughout the day. What do all these things mean?
When markets are usually in a state of confusion, both buyers and sellers hold onto them, hoping for some clarity and therefore the price movement (change in prices) is gradual. But when the markets are in a state of extreme confusion, then there is a lot of volatility in them. This happens because buyers and sellers feel that the market has reached a very high or low valuation and from here there can be a very sharp drop or bounce. But no one can predict when this decline or boom will start.
Because of this, the entire movement of the market runs only on the news and therefore the sellers on any positive news want to re-enter the market immediately and those who have bought on any negative news want to exit in panic. On a good news, the indices in the stock market can rise by 2-2.5% and similarly on a bad news, they can fall back. From this whole theory, the tremendous volatility seen in the stock market today can be understood. We have been hearing the story of drying up of global liquidity for the past few months and any single negative news can make buyers sweat and sellers get into party mode.
Something similar happened on Friday, when news came from America that the retail inflation rate has gone above 7%. The continued rise in inflation means that the expected 25 basis point rate hike by the US Fed in March could double. Also, 3-4 hikes in interest rates may increase to 5-6 in 2022. These news are disturbing to the market.
Russia’s military action in Ukraine is hanging like a sword on the market as the price of crude oil has already crossed $ 90 on that fear. But despite these fears, what is the meaning of the way the markets are repeatedly jumping after every fall to realize their inherent strength?
To understand this, take a look at some figures from last week. On Monday, the Nifty fell by 302 points (1.73%). Foreign Institutional Investors (FIIs) sold Rs 1157 crore and Domestic Institutional Investors (DIIs) Rs 1376 crore on that day. But on Tuesday, when Nifty closed by 53 points, on that day FII had sold for Rs 1968 crore, but DII was buying for Rs 1115 crore.
Similarly, on Wednesday and Thursday, Nifty closed up by 197 and 142 points respectively. In both these days, FIIs were the sellers of Rs. 892 and Rs. 1732 crores respectively, while DII made purchases of Rs. 1793 and Rs. 2727 crores respectively. And then Friday came when once again there was a fierce sell-off in the stock markets. Nifty once again fell 231 points, but on that day FIIs had bought Rs 108 crores, while DIIs were sellers of Rs 696 crores.
These figures tell an amazing story.
The story goes that it is now a thing of the past when the fortune makers of the Indian stock market used to be foreign investors and danced to the tune of Sensex-Nifty FIIs. Now the stock market of India is moving in the direction decided by the Indian investors. Whether FIIs buy or sell, the market camel sits on the side where the DIIs sit.
DIIs means small investor of India, who is putting 2000-4000 rupees every month as SIP in the stock markets through mutual funds. From when the indices started falling after touching their highs on October 19 last year, till December 20, when they touched their lows, we saw a huge sell-off by FIIs. But even in that period, small investors kept their faith in India’s growth story and in December, equity mutual funds brought in Rs 25,077 crore, which is a record. Although this amount almost halved to Rs 14,888 crore in January, this is the 11th consecutive month that retail investors have continued to make net investments in the stock market.
This is the single factor that will decide the course of Indian stock markets in the coming months as it will be interesting to see the short-term investors’ attitude if the FII sell-off continues for a long time and the markets start breaking down. Historically, it has been observed that the small investor tends to stick around when the market is usually at its highest levels during a bull run, but as the sell-off increases, he tends to run back to the market the fastest. .
And then sits out of the market until the market is back near the highest levels. In this context, a new trend is visible that even after October, when the bullish confidence in the markets has been shaken badly, till now small investors have remained net buyers in the market. As long as this situation persists, the markets will continue to bounce back after every fall.
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