Race to 9,000 through warehousing route

Mumbai, Nov 20 | Updated: Nov 21 2005, 06:41am hrs
December is just round the corner and it is almost time for the warehousing effect to be witnessed on the equity bourses. Every year, during November and December both operators and investors increase their activity to warehouse stocks in order to make a profit in January when foreign institutional investors (FIIs) come with fresh allocations. This, in turn, acts as a trigger, pushing the benchmark indices further northwards.

Interestingly, in the last six years since 1999, the bourses have always gained ground in the one-month period between November 15 and December 15. Take the case of 2003. The benchmark 30-share Sensex of the Bombay Stock Exchange (BSE) gained nearly 11% or 525 points between November 15 and December 15.

The broader S&P CNX Nifty of the National Stock Exchange (NSE) gained 11.19% or 173.50 points in the same period. Market experts say that FIIs coming with fresh allocations in January is an annual feature and so investors buy and warehouse stocks in Nov-Dec so that they can sell in January at a premium.

SP Tulsian, investment consultant, said, The markets may not see much activity from FIIs in the latter half of December. However, with the holiday season over, foreign investors will come to the Indian market with fresh allocations in January and that is the time when local investors would sell their holdings at a premium.

This buying activity might also push the Sensex to higher levels, added Mr Tulsian. Historically, since 2000, the Sensex has always gained more than 5% in this one-month period.

In 2001 and 2002, the Sensex gained an impressive 5.45% and 9.71%, while Nifty gained 5.04% and 8.90% respectively. Vinit Birla, analyst, Pranav Securities, corroborates this and says that FII activity might slow down in the latter half of December only to resume in January.