A turnaround

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: The strong gains by the Congress to grab the Centre with independent strength and the reaction by the markets on what is now known as ‘Magical Monday’ will go down in the annals of the stock market and the country’s history as well.

Suddenly, from a dismal scenario almost a month ago, things on the equity market and the economy look bright. Research reports coming from all quarters hail the re-rating of the Indian equity markets and announce a comeback of sorts. Fund managers and money market experts also bravely speak of a revival in the fortunes. “Yes we have started getting increased enquiries for making equity investments again,” says Rajesh Saluja, CEO of ASK Investment Managers, one of the leading wealth management companies in India.

Exuberant

And, like in any scenario that depicts ‘irrational exuberance’, this too could prompt many to start transferring their wealth in a hurry to catch the next bull rally. The question therefore is, is it a time to rush into equities? And the answer is not an unequivocal yes.

On closer scrutiny of the huge 17% gain on Monday, May 18, it can be seen that the surge was caused by two things. One, strong buying from the overseas investors who picked up (at a gross level) around $2.75 billion worth equities, on a net level too it was worth $1 billion in one whole day. The second was the huge short covering that got through. Data from the BSE suggests that high net worth clients had net sold equities worth Rs 3,800 crore on May 13, in anticipation of a fractured mandate and a subsequent fall in the market on Monday. There were huge short positions built up as well and they had to be covered. All this led to having more excessively more buyers in the market than sellers, rather none on Monday.

“Markets were undervalued and investors were underexposed in equities. With the favourable resolution of the election uncertainty, which was a prime concern, cash sitting on the sidelines is trying to get invested, resulting in investors trying to buy in short period of time,” said Prateek Agrawal , head – equity investments , Bharti AXA Investment Managers.