The Sharp
shooters of BSE/NSE equity market platform (they are operators, fund managers
and of course FII) are focusing on macros of economy in their
investment strategy. Interest rate, Inflation, IIP data, GDP growth,
corporate earnings, trade deficit, fiscal deficit, global economy trend, Global
currency trend, commodity price movements and lot more….
They analyze
the data of all above macros and predict a market move and accordingly take
position in equity market. Since market moves on various factors, above macro
analysis may not work in short run. However, market players know the market
cycle and continue their position. The stocks acquiring activity is at ease and
there is no hurry to pick the stocks at once. Let the investors sell the stocks
and the players are ready to catch it.
We all know
that market cycle will turn after some time. So at an appropriate time market
starts moving up which was all expected and the great thing for operators is,
they have acquired lot of stocks at throw away prices.
The layman
investor is reading the newspaper which is full of negative news like political
uncertainties, unrest among various classes of society, various agitations,
various scandals, high living cost and so on…
Reading such
disappointing news, the layman investor becomes negative and never thought to
enter in to market. Instead he sells his stocks in desperation. He ignores
macros, fundamentals of economy, market cycle and opportunity of acquiring stocks
at cheap market level.
At the second stage, as
the turn of macros / fundamental becomes strong, slowly economy recovers and
other positive news comes out. The investor is now hopeful but avoids buying at
this stage and wait for the gone “Low” to buy stocks.
At the third
stage, result of economy recovery is seen in GDP growth rate, consumer buying
data, corporate sales growth and higher earning of companies. The investor is
now reading high growth data of corporate earnings and tempted to buy the stocks.
Initially he earns. Excited by high earning in short run, he enters in the
market with more funds.
More the earning in short run, more the investor invests
at high prices, such a level where the corporate earnings are known to all.
Investors are busy buying the stocks on good news inflows. The operators has
now chance to offload the acquired stocks at their decided price and layman
investors crazily buying stocks on receipts of ‘short term earning stock TIPS’
This is the main
difference. The front runner in the market always looks in to opportunity at
future date, will look at macros / fundamentals. They visualize what can be
good and what can go wrong at certain time frame and accordingly they take
risk. That is calculated risk. The common man invests looking to current
situations/reading corporate results and hence his transaction price is
discounted by prevailing news. He is late entrant and so he always pays premium
for the news which is known to all.
So always
try to understand fundamentals of economy which is basis of equity market
growth. Before buying a stock understand market price history of the stock.
Purely entering in to equity market after reading P&L and balance sheet may
be proved to be a shocking loss by entering at higher price. The operators
successfully sell their holding during market hype making handsome profits.
Ending this
write up, I think next boost to Indian economy will be through crude oil
prices. Once the crude prices eases, all the macros listed above will become
positive. FII was strong buyer in equity market in last year and
the same is continued even now, my instinct says there will be easing in crude
oil prices in current calendar year. The positive news may put the Stock market
on fire.
(Important
Note: This article is a write up to provide information. The predictions may go
wrong. This is not invitation to invest to any scheme.)
