Wednesday, February 13, 2013

The BIG players’ Equity Game

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.)