Due to the following reasons, the retail Stock Market investors (DII) are in for a perfect storm.
Liquidity, Sentiment and Fundamentals, as rightly said, are the base of any rally. Allow me to provide my view on each.
- USA has made clear her intentions to absorb liquidity back into the US economy from world over, and this figure is touted to be, not in paltry millions or billions, but in trillions.
Therefore, FIIs are net sellers and are hence in need for enthused buyers who are blinded enough by greed to suspense all logic and continue the buying spree even at highest valuations.
FII activity in 2017 -44,108.85
FII activity in 2016 -14,356.01
FII activity in 2015 -20,373.69
FED is increasing the interest rates and hence their corporations need to plough their dollars out from our markets and into their stocks and bonds. If they do it haphazardly, they are only going to get a few cents on a dollar. So they have to be strategic about it. They have to set-up a solid buyer to absorb their trillions. A fund house or two wont cut it, they need an entire nation to participate in the madness. Here come in the innocent lambs, the sentimental beings: The DIIs.
DII is a sentimental herd. They leave the dreary job of research and study of fundamentals to the professionals. Hence, we see DII recklessly buying, left right and center, at current ungodly valuations.
All thanks to the media, the sentiment is made and maintained bullish. Modi government coming in with its promises also helps. Modiji is the new face of “Vikas”. He will get there, but it will take a good part of the decade.
I believe, when the purpose is sufficiently served, when the FIIs have sold a meaningful quantity, they will pull the plug on their payments to the media and let nature take its own course.
Consequently, without the Media fed dosage of news of bullishness, within a week the retailers will be falling on each other on the way out, causing lower circuits day after day. Cuz when DII turn sellers, there will be no buyers.
In conclusion, I think Liquidity and Sentiment are the same thing. Once sentiment turns, liquidity will too.
Fundamentals are downright poor. No doubt about that either.
In last six month the EPS growth of Nifty 50 has been a negative. It may improve but not substantially and anytime soon. To make matters worse, Crude prices and GST are not helping.
Finally, we are left with nothing substantial to depend on for supporting the market. Liquidity and sentiment are two sides of the same coin, which is in the pocket of the media, which surely gets paid handsomely to dedicate their expensive air time to bullish news. Once the purpose is served, they will turn. With poor fundamentals and absence of FII led buying, things are likely to get from bad to worse very quickly.
PS: I will continue to bitterly cry “Bear” until I too get paid.