Do it yourself

The benchmark Nifty has gained more than 22% during the one month of lock down. The broader market indicator Nifty500 has also gained by similar margin. This counterintuitive trend may be perplexing many market observer. I am however not surprised by this sharp rally of past this month. In fact I believe that this rally may even extend little further in May. In my view, this is a classical bear market rally in which the stocks are distributed to a large number of non institutional participants, popularly referred to as retail investors. A significant distribution takes place in the poor quality stocks, which are usually difficult to sell if the markets are falling. As you would observe from the following table, on 14 out of 21 trading session between 23 March and 24 April, the institutional investors and insiders have been net sellers. They have sold a net amount of Rs12676cr of equity on NSE itself. The domestic institutional buy of Rs8420cr is roughly equal to the am...

The elementary principle of economics is that the price of a thing that has any economic value is determined by the forces of demand and supply. Often in the short term a state of inequilibrium may exist leading to higher volatility in prices. However, the equilibrium is usually restored by operation of a variety of factors. There is no denial that economics is youngest amongst the scientific discipline and pure scientists hesitate in admitting it as a discipline of science. Nonetheless it is evolving fast and becoming popular. Not getting into this academic debate, what I have understood is that in popular economics theory is that: (a)    Price of currency is usually a function of demand and supply of that currency at any given point in time. Higher supply should normally lead to lower exchange value and vice versa . The demand of the currency is determined by the relative real rate of return (interest) and structure of economic activity (e.g., current acco...

The last earnings season for FY20 has started. The three IT majors have announced results which appear good under the given circumstances. HDFC Bank also announced an encouraging set of numbers. The brokerages have drastically cut estimates for FY21 and FY22 earnings apparently to factor in the business disruption caused by the lockdown. Though there is still large variance in the estimates, the consensus appears to be favoring a flat earnings growth in FY21 and single digit growth in FY21. After reviewing earnings estimates of numerous brokerages, I have realized that respective analysts might have just used this opportunity to climb down from their egregious estimates, which have proven consistently wrong for past 5 years at least. Their basic premise still appear erroneous to me, though the data now appears much closer to the reality. I would like to highlight just three points in this context: 1.     The average earnings growth of Indian c...