Investments in stocks/shares in India: almost always – if not always - a big blunder.
News: Rumours spark 500-point sensex plunge.
Comments: This is exactly how the SENSEX (an acronym for the premier Bombay Stock Exchange Index) moves up or down: on plain and simple RUMOURS. For the uninitiated, the SENSEX reflect the effective result of movement of 50-odd actively traded, heavyweight "A" category CASH stocks e.g. Reliance, Tata Steel, Infy, ONGNC, L&T, etc. out of the 2000 or more scrips listed in the Stock Exchange, that are traded only intermittently or infrequently.
There were three or four pregnant reports in newspapers recently:
(1) even out of the 50 "A" category scrips the upsurge in the SENSEX was caused by hectic buying by Foreign Institutional Investors (FII's)' in other words the other 40-odd scrips were languishing, maybe at the bottom
(2) FIIs pumped in 20 billion US dollars (about Rs.1.25 lakh crores!) during 2013. FIIs, of course as everyone else, are only interested in raking in bumper profits in a short time and quit; in other words, the FIIs are not too much bothered about the 'fundamentals' – or financial health in plain language – of scrips they buy into. The fundas of financial advisers that you should choose and invest in scrips of companies that are fundamentally strong are bosh and nonsense, and you please take them with a pinch of salt. The so-called 'experts' in Mutual Funds and commercial banks (where they are called Relationship Managers) are as good or as bad as you and I are as far as the stockmarket gyrations are concerned; a fine example is that of HSBC Bank that promised Suchitra Krishnamoorthy a minimum return of 15% on the investments she made through the bank's relationship manager, and in the event she lost 50% of her capital! An associate MF of a bank (I think, it is ICICI Bank) keeps tomtomming through circulars after circulars of what it calls "value investment", that is to say that its managers – against 'experts' – are smell the real worth of a scrip that is quoted below its potential and invest in them for you . Beware of such tall claims.
(3) The SENSEX went by 9% over the 12 months of 2013; remember the rise relates only to the "A" category scrips. What's the big deal at 9% when commercial banks accept Fixed Deposits @ 9.5% per annum, where your money is safe?
(4) Retail investors are deserting the stock market. That's no big surprise, the aam janta having burnt their fingers and learnt the bitter lesson. Anyone who is someone tells you that investments in MFs via SIP (Systematic Investment Plan) are 'safer' – yep, monthly investment may be safer but not safe! Safer in the sense that you don't lose all your money – or most it – by making lump sum investment; in SIP your loss is minimized, bas.
(5) MIDCAP and SMALLCAP scrips (of middle-sized and small-sized companies) have lost heavily in the last two or three years. If you didn't know it, MIDCAP and SMALLCAP scrips are the preferred choices of MFs because they are relatively cheap, though not safe bets!
So? Stay clear of the stock market…
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