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STOCK
MARKETS Who is Buying Stocks? Foreign investors and mutual funds triggered the buying spree. Small investors are now stepping in. By V Shankar Aiyar, Rohit Saran and Sumit Mitra Good news alone is not enough to fuel a bull rally of this magnitude. It takes money and there is plenty of it flowing into the market. Currently, mutual funds are estimated to be managing assets in excess of Rs 92,000 crore. Between April and November 1999, mutual funds -- thanks to Finance Minister Yashwant Sinha's master stroke of exempting dividends from tax -- added Rs 11,130 crore to their kitty. Compare this to last year's net outflow of Rs 949.7 crore. Plus Rs 6,700 crore that foreign institutional investors (FIIs) have brought in during the calendar year 1999 and they poured in Rs 201 crore into the market in the first two trading days in 2000. In fact, currently FIIs have investments well over $10.25 billion, or nearly Rs 45,000 crore, in the Indian stock markets.
To get a better idea of the kind of money flowing into the Indian markets one only needs to take a look at the trade figures. Turnovers (buying and selling of all stocks in a day) in the new year reached Rs 5,000 crore per day of which over Rs 4,000 crore is in A-group scrips. Average weekly margins (money paid to book a share) collected across the country's bourses are today to the tune of Rs 3,000 crore. A sum of Rs 6,000 crore of badla (finances required to fund a carry-forward deal) is done across the country's bourses. Add another Rs 2,000 crore in the arbitrage business and one gets a neat picture of the magnitude of the investment that is flowing into the stock markets. Tack on to all this the retail investor. Ridham Desai, India strategist and vice-president, JM Morgan Stanley Securities, points out, "Retail demand for equity is very strong. Currently the share of equity in total household savings is 8 per cent, up from less than 2 per cent last year." Compare this to the high of 23 per cent household savings that flowed into the capital market in the financial year 1992-93 and one gets an idea of the deluge that could be. Or look at it another way. India's total household savings is estimated to be around $50 billion, or Rs 2,15,000 crore. An accretion of 10 per cent or $5 billion (which is half the total sum invested by the FIIs) from this kitty into the equity market could take the Sensex to new heights. Add to this the fact that Indian stocks listed on the Nasdaq have registered phenomenal growth in value. Satyam Infoway has shot up from $90 to $235 in less than two months, while Infosys is hovering around $325. The investors have not done badly on the Indian bourses either. Samir Arora, chief investment officer, Alliance Capital Management Ltd, says that for the past two years, foreign investors have been making money and are excited by the growth in their investments. Those not already here are feeling left out. Not surprising if one considers the good money Alliance has made for its investors, "a return of 215 per cent" in 1999. Arora points out that the Sensex itself is up by 70-80 per cent and most equity schemes from private mutual funds have outperformed it. "The opportunity cost of not being here has been high," he says. Given the rise in global markets it is only natural that profits generated in those markets would find new markets to multiply. The American stock markets have delivered particularly astounding results. With the advent of a surplus budget in the US, household savings of that country need to find new investment destinations. There is a happy coincidence too. According to Desai there has been an overall shift in benchmarking. It is believed that a large number of fund managers are planning to move from developed markets to emerging markets with a growth potential. "This will also create a bigger inflow," says Deepak Parekh, chairman, HDFC. He believes that "India will get larger allocations given the depth, quality and liquidity of scrips". Besides global trends are influencing what is happening to stock prices in India. Globally, there is a $300 billion services market and India commands a share of just about 1 per cent of this. Given the great competitive advantage that India has -- availability of highly skilled workforce at relatively low salaries -- it could grab a bigger slice of this cake. This would translate into huge revenue generation which would again spur the share values triggering a further rally. Some of the rich valuations that are coming forth are essentially reflecting this potential. There is enough opportunity too. Arora points out that unlike the other Asian markets the India menu offers a diverse range to suit virtually every palate. "We have the depth and a wide variety of stocks. No other country for instance has so many blue chip MNCS listed on its stock markets," he says. In the consumer-durables sector, there are hardly any companies listed in any emerging market other than India. But for Indian companies, Asia does not have a pharma sector to speak of. "We have almost everything -- a range that spans from FMCG to utilities and infotech. The mix is very good and comparable to many developed markets." There is also an increasing confidence in the otherwise tumultuous world of Indian politics with Prime Minister Atal Bihari Vajpayee at the helm. Also, the trading systems have improved considerably with the advent of dematerialised trading. This confidence in the system is not restricted to FIIs. Stories of riches -- now increasingly exchanged at social functions and weddings -- and wealth created as in the case of infotech stockholders are not for the books. This wealth, explains Sharma, "gets pumped back into the economy as consumer spending pushes corporate performance leading to a second round of good news". And it is this promise that brings in more people into the party as has happened in the US.
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