The Indian stock markets have had a great run since their lows early this year. However, there are now clear indications?supported by data? that investors in general are becoming uncomfortable with the rapid rise in the stock indices. The domestic equity market has corrected around 5.50% in the past one week, but the underlying sentiments still look cautious. The average daily turnover in the cash equity segment of both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) is down nearly 20% from their peak recorded in June 2009.
The BSE has witnessed its average daily turnover in the cash equity segment dip by 21.22% to Rs 5,700.35 crore in October from a peak of Rs 7,236.12 crore during June. Similarly, the average daily turnover on the NSE dipped to Rs 18,147 crore, 17.24% down from Rs 21,927.89 crore during the same period.
Experts attribute the drop in turnover in the cash equity segment to the absence of fresh buying at higher levels as investors are concerned about the unjustified buoyancy in the equity market. Investors, including institutional investors, are not taking any long-term view of the market at this point of time and are rather resorting to sectoral rotation in order to profit from the periodic rise in share prices, according to experts.
?Long-term portfolio building activity has taken a backseat in recent times. We have seen even mutual funds resorting to large-scale churning of portfolio in the past few months,? said Deven Choksey, MD, KR Choksey Securities. ?The markets have rallied and valuations have run up relatively higher in a shorter period, ahead of time. There is an overall sense of caution among the investor community,? he added.
The weakness in the current rally was very much visible when positive news flows in recent times failed to cheer the street sentiments. When Reliance Industries Ltd (RIL) announced a 1:1 bonus issue, the stock, after witnessing an initial surge in intra-day trade, could not sustain at higher levels due to lack of fresh buying. The stock, after hitting its day?s high of Rs 2,209 on October 8, had to end the trading session at Rs 2,119, with just a marginal gain of 0.96% to its previous day?s close.
A similar trend was witnessed when Infosys Technologies came out with its second quarter results on October 9, beating street expectations. The same day, Infosys stock closed 1.51% down at Rs 2,178.35, after hitting an intra-day high of Rs 2,293.65.
?Investors are just looking for a reason to sell in the market,? said Arun Kejriwal, MD, Kejriwal Research and Investment Services.
?Infosys, after a long term, had revised its guidance upward. But it still failed to boost the market sentiments, which shows that investors want to sell at every rise. This is a clear sign that the market is in an overbought territory and investors are not comfortable with the current valuation,? he said.
And the latest trigger for selling came after the Reserve Bank of India (RBI) signaled the reverse of its accommodative monetary policy by 1% hike in SLR. Further, the second quarter earnings from Reliance Industries Ltd (RIL) and Bharti Airtel, which fell below the street expectations, further dampened sentiments on the domestic bourses. The recent activity in the derivative segment suggests that the range of Nifty?s movement for the month of November has shifted downside for the first time in the last four months, according to a derivative analyst.
Siddarth Bhamre, derivative analyst and fund manager with Angel Stock Broking, said, ?The open interest position in Nifty put and call options is more concentrated at a strike level of 4,600 and 5,000. This indicates that traders have placed their speculative bets at a lower range compared to previous months?.
In the month of August outstanding open interest, those positions which are not squared of at the end of the day in Nifty put and call options, were at a strike level of 4,200 – 4,700, which went to a higher range of 4,500-5,000 and 4,700-5,200 during the month of September and October 2009, respectively.