 |
| P R Sundar, Aditya Trading Solutions |
Time: 8.30 pm
Stock Market - Who make money?
Yesterday, I discussed about FIIs.
Long only FIIs, who invest in cash market, lost huge amount of money.
They brought in $ and taking back equivalent Rs, thereby losing about 95% of their investments.
Today I will discuss Domestic Institutions.
Who are Domestic Institutions?
All mutual funds and LIC.
We will first tale LIC.
Earlier LIC used to buy shares when they fall drastically and used to sell when the markets are high.
It served two purposes.
One, LIC used to make good profit by buying low and selling high.
Two, stability in the market. Falls too much, they buy, so markets will not fall beyond a limit, if market rises, LIC will sell, so markets will not rise beyond a limit.
But for the last many years stock markets have not been doing well, so retail investors are not active. Retail investors have lost their faith in the markets. And hence no public issue is possible. But Indian Government is very adamant that it wants to sell Rs 30,000 crore worth of shares every year. Why? So that these amounts can be used for welfare schemes and consequently hopes to win the next election.
Government wants to sell, but nobody is there to buy.
So, Government is asking LIC to buy the shares. For example, ONGC issue bombed and LIC had to fork out Rs 40000 crore to bail out ONGC issue.
It is very important for LIC to satisfy our politicians rather than stabilising the market.
So LIC is totally out of the markets.
Short sellers have analysed this and they brought down the market by nearly 20% in less than a month.
Yesterday morning there was news that LIC started buying shares, see the magic in just oneand half trading session, Nifty shot up to 5420 from around 5100.
Now let us come to Mutual Funds.
Mutual funds are answerable to their investors. Otherwise they will not be in the business. But it is the herd mentality of the investors make life difficult for mutual funds.
Late 2007, everyday 35000 mutual fund accounts were opened. When the market is at its peak, people believe that the market will go up further and pump in lot of money into mutual funds. People in the mutual funds know that the market will not sustain, but since they have the money, they have to invest, otherwise their NAV will continue to be at par and investors will question why the NAV is not going up when market is going up.
So mutual funds do not invest when market is low and sell when market is high. They invest when they get money and sell when there is redemption pressure. So when do they get money? When the market is very high. When do they get redemption pressure? When the market is very low.
Late 2007, when 35000 folios opened, now everyday 9000 folios are closed. No matter how low is the market, Mutual Funds have to sell if there is redemption pressure.
So mutual funds always lose money.
This is only a general rule. There may be exception, like sectoral funds doing well.
So mutual funds always lose money due to the herd mentality of the investors and LIC seems to be losing to satisfy our politicians.
So finally Domestic Institutions are not making money.
Then who else is making?
Discussion to be continued....
Comments
Post a Comment