0: The first signs of the sub prime crisis and fears of the recession
1: The small correction due to the P-Note issue
2: The fall
3: Death of Lehman
4: The period of our analysis
When everyone was worried and scared and freaked, whole shareholding patterns had changed in various companies. Promoters had vacated their seats in some cases, while in others, LIC was upping its stake. When the FIIs were selling, the transactions were happening. Not everyone was selling- it just doesn't happen. The sellers were selling madly, while the buyers were getting all the discounts they wanted and consequently, the prices that they wanted. I'm not talking about the penny shares- they never have reasons to trade. As a general rule to every counter that sees trading, the number of shares traded go down when prices move up. The delivery ratios become perfunctory in our analysis as even when prices were high, and when prices were low, the delivery ratios are comparatively similar.
Between Oct 08 and Mar 09, from the graph, we see that volumes were less, but not so less as we were led to believe. Participation of the FIIs was low, volumes were upheld courtesy the participation of the domesitic players such as insurance companies and some NBFCs, while mutual fund managers waited. After that period, from Apr 09, as is evident from the graph, everyone found themselves out of sync with the market rally- so everyone dived into the flowing water. The volumes never have been higher- and even while prices are low. This is a direct consequence of large volumes, in number of shares traded, being part of transactions. Delivery ratios have been impressive, and this corroborates the fact that many public shareholding patterns changed during the period. Everyone wanted to participate, and now everyone is chasing the markets. This may be due to the availability of share prices at lower levels, or due to the sheer frenzy of the investors. When the two converge, no one can tell- not even history.
But one must also consider the fact that since such large quantities of shares have traded at lower prices at significant delivery ratios, after the year may run its course, the an amount of shares thus bought may form part of the supply which may outweigh the demand, pushing down the indices once again. The stock markets are the most volatile economic indicators- and at the moment, as always, they have overreacted to the positive news- just what happened to the negative news in the opposite direction. Although, there is a difference now. The bubble has burst, and air is going in at the moment. The people who fed on the spoils of the destruction, are the prime gainers. The organisations and the banks that had to fail, have failed. The downside has been seen. The only movement left now in this new economic cycle of the capitalist's diocese is upward; but till when, is the question.
The world economic is in a perennial bull market till the resources are profitably exploited, products are produced and consumed. What can ruin it is derivatives, and the financial sector being the only one which can lead to doom. The financial regulators should learn from their mistakes- and the economic stimulus should be withdrawn as soon as it seems fit. Governments should start taxing the profits as soon as it can, as the next bust will be bigger as the speculators grow bigger. The only thing that can take down the markets is bad news from the financial sector. Inflation being controlled, the other sectors will slowly find their way out of the dark tunnel, and the economy will revive to good highs once again given the fund managers and the financial planners do not resort to ugly gambling.
If you're a long term investor, you would be looking at the point of inflection in the economic curve, and should go ahead with your investment decisions as far as equity is concerned. If you're a short termer, a healthy market such as this should facilitate your activities. The stage is set. Let's see how the act plays!
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