Stock Market - Who make money? Part 1 | Stocks and Commodities

P R Sundar, Aditya Trading Solutions

August 28, 2013
Time: 6 pm

Who make money in stock market?

Who make money in stock market? Is it FIIs, Domestic Institutions? HNIs? Retail investors? or Traders?

Long term investors? Short term investors?

Let us look at each category of people one by one.

First FIIs.

FIIs are big brothers or at least that is what we think.
SEBI came out with a new guidelines that all listed companies in India should have a minimum of 25% public holding.
The deadline was June 2013.
A month or two before the deadline, the stock market was not in a position where retailers will apply for shares as the retailers are already out of market. None of the public issues got good response from Indian Public.
So all the companies came out with QIP, qualified institutional placement, where all the shares were sold to institutions.
Most of these shares were bought by FIIs.
Axis Bank issued Rs 5000 Crore worth of shares at Rs 1400 per share, now within few months it is trading well below 900 and FIIs have lost almost entire 5000 Crore if currency depreciation is taken into account.

DLF came out with Rs 232 per share, now trading well below Rs 150.

These are the examples. Back of the envelope calculation will show that FIIs have lost over Rs 1 Lakh crore in the past few months,assuming that they have bought and holding them now.

With so much money and research capability, why they could not foresee the Rupee depreciation? Nothing surprise has happened between May and now. Whatever is unfolding now, like Fed tapering, Syria problem, etc, were all in public domain since May.

Yet FIIs bought so much shares at such high prices.

Axis bank shares were trading around Rs 900 few months before their issue. In few months it went up to Rs 1400 and the company sold the shares at Rs 1400 and again in few months time now it is well below Rs 900.

One full circle, FIIs lost around Rs 5000 Crore and Axis Bank got Rs 5000 crore at attractive rates.

Who won in this game? Who lost?

Whenever people lose money, one saying comes, 'be long term investor'.

Long term? OK. Long term is how long?

There are a number of examples in world stock markets that long term can extend 25 years or more.

Japan's Nikkei index was around 40000 in 1989. Now even after 25 years it is well below 15000. How many more years one has to wait if he has entered at 40000? may be another 25 years? Who knows?

Somebody who entered US market in 1927, could come out only in 1955 without loss.

But they are developed economies. The fixed returns are almost negligible and hence even after a long period if they get back their money they are happy.

But what about India?

Taking inflation into account your money will have to double in 5 - 6 years in order to recover your principal, forget about returns.

Taking inflation into account, how many more years one has to wait if he has applied for Reliance Power public issue 2008?

It is the FIIs who applied for almost 50% of these shares.

Currency has depreciated by about 75% from Jan 2008 and price of the share depreciated by about 80% and FIIs have lost almost 95% in this issue alone.

I tried to research the bottoming out process in various asset classes. In my opinion, once wealth is destroyed by 75% to 99%, (taking inflation into account), asset classes bottom out.

As for as Indian markets are concerned, a number of leading companies have destroyed investor wealth by more than 95%. But yet there seems to be no bottom in place.

Clearly it is the FIIs who lost most of the money in Indian stock market. Among the losers, they will stand first.

I will discuss about others later.

Note: The views expressed in this blog belongs to the author Mr P R Sundar, not of ATS.