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The current high levels of key stock market indices could well be deceptive as they are neither supported by improvements in economic conditions nor corporate fundamentals.
At a CII organised meet here on Wednesday, market experts warned retail investors of a possible booby trap.
FIIs-driven rally “Retail investors should keep in mind that the FII-led present buoyancy in the secondary market is because of reasons other than fundamentals.
“FIIs have invested only in certain heavyweights, which took the indices up. They have their time and return goals. Their strategies are driven by the weak rupee against the dollar,” said V.G. Kannan, Managing Director and CEO of SBI Capital Markets Ltd.
The BSE’s S&P Sensex did not reflect economic and corporate fundamentals, felt D. Kallu Rao MD of Canara Bank Securities Ltd.
Word of caution The S&P Sensex had hit an all-time high of 21,215.94 on Monday after Assembly elections gave a verdict in favour of BJP.
Kannan said retail investors, as always, might join the so-called rally late at higher levels. Unless they use discretion and stick to their respective investment horizons and return goals, they might lose in the current market, he cautioned.
Dipankar Chatterji, President of the Calcutta Stock Exchange Association Ltd and Senior Partner, L.B. Jha & Co, said the Indian capital market was in a bad shape. “The real exchange of capital has not been taking place,” he felt. The retail investors so far stayed away from both primary and secondary markets. Whilst FIIs of late had a field day, domestic mutual funds are struggling for survival.
“The corporate bond market also lacks liquidity and depth,” he added.
Rao pointed out that FIIs pumped in about $17 billion this year, higher than in the previous year. But majority of corporates opted for borrowing rather than tapping the primary market for fear of fetching lower-than-expected prices for their offerings.
At the end of the day, they ended up with higher leverage at the cost of straining cash flow generation, he observed.
>jayanta.mallick@thehindu.co.in
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