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Making Sense Of The Market

Remember the old saw about a puzzle wrapped in an enigma. That's a good description of the stockmarket today.

Reprise: it isn't often that the BSE Sensex loses 19 per cent in eight trading sessions. That's a dip of 598 points (between September 11 and September 21), and an erosion in market capitalisation to the tune of Rs 85,122 crore. And things are playing themselves out-as this magazine goes to press-along the lines of a script we are all quite used to: investors, individual and institutional, domestic and foreign, are deserting the market, the FIIs (Foreign Institutional Investors) have turned zealous sellers, and tech-stocks which can now quite rightfully claim to be the fall guy of the market, fell over fears that their earnings-dependant on the American market-would take a hit.

Grain, Grain, Everywhere

Exchange Extinction

Small Investors? Smaller, Still

Four Teen Types For Tyros

Yes, markets across the globe are in no better shape. The Dow hasn't fallen as much as it did in the days between September 17 and 21 since 1933, and the Nikkei is at a 17-year low, but the Sensex-that's closer home, and it hurts. What's worrying is the inertia of major buyers: the FIIs, buyers for most part of 2001, are now sellers and no Indian fund seems in a hurry to buy. So, what is it going to take for the markets to go back to those pre-September 11 levels that look so attractive now. ''The uncertainty in the market is because nothing is happening right now,'' says Deepak Mohoni a Mumbai-based investment analyst. ''But if something does happen, the recovery will be quick.''

The Rupee Rumble

Why the rupee falls against a falling dollar.
Sometimes, it is difficult to accept that India is endowed with a currency, the rupee, that shows a Humpty-Dumpty like obsession about adhering to the law of gravity. It wasn't the September 11 terrorist attack on the US that sent the currency into a state of free fall (although in the immediate wake of the incident, the rupee did plummet to 48.66 to the dollar before sanity prevailed and it recovered); the rupee has been steadily depreciating this year. Consider the facts: in the first nine months of the year, it has slid from 46.66 to the dollar to 48.05. The logic? It just so happens the rupee has an inherent bias for depreciation. Marked as it is against a basket of currencies including the Yen, Pound, and Euro, the rupee is sensitive to any appreciation or depreciation of these currencies to the dollar (if they move up, it moves down). Then, of course, there is its inverse dynamic with the dollar. Ergo: irrespective of whether the dollar rises or slides, the rupee is destined to fall.

-Roshni Jayakar

The government's efforts to revive the market have largely gone unnoticed. The RBI now says it is alright for banks to finance margin trading-brokers borrow money from banks to finance their trades using the stock acquired as collateral-provided their total exposure to the capital market remains under the mandated level of five per cent of total advances. But most banks are already close to this level, so the RBI's move isn't going to change things much. The FIIs, who could only trade in index future have been given a nod to trade in index and stock options. The RBI decision to increase the ceiling on FII investment in Indian companies from 49 per cent to the same level as the existing sectoral cap on Foreign Direct Investment will help boost India's weightage in several global indices like the MSCI (Morgan Stanley Capital International) one. But this should be seen in light of the fact that, thus far, only eight companies have even reached the 49 per cent ceiling.) ''In a weak market, the good news is ignored,'' rues Brian Brown the managing director and head of equities at Salomon Smith Barney's Indian operations. In the immediate future, he sees a balance between the buying and selling of stocks. That's bad news for the market: in the absence of fresh inflows, the Sensex could remain trapped in the 2600-3000 range.

Still, most investment analysts believe this is a good time to start building a portfolio. Most stocks are trading at their 52-week lows and market history shows that those investors who picked stocks when the Sensex was down have rarely lost. During the Kargil war, for instance, the market fell 2.8 per cent, but recovered by over 26 per cent over the three months after the end of the war. Maybe, just maybe, a collective stock picking drive could halt the slide in the Sensex and bring some cheer back to the markets.

-Roshni Jayakar

Grain, Grain, Everywhere
As the pile of unstored foodgrains grow, the government's solution to build hi-tech silos is yet to find takers.

Mounds of grains lie in wait for safe storage

Look at the photo accompanying this item. Rows upon rows of foodgrains stored in the open as far as the eye can see. This is at least a Food Corporation of India (FCI) godown. Across the country, wheat and rice are being stored in disused airports, with a tarpaulin thrown over the bags.

Criminal, did you say? Read on.

Even as the growing pile of foodgrains mounts to 61 million tonnes, nearly thrice more than what's needed as buffer stock, the government continues to put solutions on the backburner.

In December 2000, worried about the mounting foodgrains stocks, the government started talks with several grain trading multinationals to build hi-tech silos and transport facilities. It was in line with what the national storage policy recommended, and was supposed to address the storage problem as well as facilitate futures trading in foodgrains.

Eight months on, the only progress is a bid document prepared by rites for the construction of silos on a build, own and operate (boo) basis. The silos, with a total storage capacity of 18,00,000 million tonnes are to built at nine locations in Punjab, Haryana, Tamil Nadu, Karnataka, Maharashtra, and West Bengal. Worse, the document hasn't yet been finalised yet.

But will companies queue up to build silos? Unlikely, says Gokul Patnaik, Managing Director, Cebeco India, an agricultural consultancy. ''It's a flop concept,'' agrees by Harinder Singh, President, Indian sub-continent, of global foodgrains major Cargill, one of the MNCs approached by the government to build silos. ''In order to create investor interest, there should simultaneously be a programme to privatise foodgrain handling,'' he argues. The proposed system, he says, is not strictly a boo model.

The government, Patnaik points out, hasn't yet decided on allowing farmers to bring foodgrain directly to the godowns. So, it only perpetuates the role of the FCI and the arhthiyas (middlemen) with all their inefficiencies and corruption. When the commercial viability of the project is suspect, asks Singh, why should a private player invest in it? Why indeed?

-Swati Prasad

Exchange Extinction
Start the rhyme with 23 exchanges, and end it with three.

It is the seat of the government, and several multinational companies are still based there, as is the editorial nerve centre of the magazine you have in your hands. Still, Delhi lost its claim to being one of India's pre-eminent business locations some time back. Now, the country's capital is set to lose one more of its commercial temples, the Delhi Stock Exchange. The Bombay Stock Exchange has announced that it is making a play for DSE. Then, the latter will cease to exist; it will become a satellite of the BSE.

With the country's two largest exchanges, BSE and NSE (National Stock Exchange) spreading their reach through the net, trading volumes on DSE, and indeed, on the 21 other exchanges in the country have plummeted. Trading on the Guwahati, Bhubaneshwar, Jaipur, Mangalore, Madhya Pradesh, Magadh, Cochin, and Coimbatore Exchanges account for less than 0.01 per cent of the total volume of stock traded in India. Expectedly, 21 of India's 23 regional exchanges are loss-making.

In the early nineties, companies venturing for IPOs (Initial Public Offerings) found the promise of listing in regional exchanges sufficient lure to attract investors from these areas. That apart, these exchanges offered arbitrage opportunities. But online trading and stringent regulations have now made these exchanges irrelevant, and many could go the way of DSE.

-Roshni Jayakar.

Small Investors? Smaller, Still
An enterprising Kolkata-broker reaches out to investors overlooked by most others.

Ajit Day: turning agri-workers and rural pros into investors

Ajit day has been president of the calcutta Stock Exchange, and he has a trading card on NYSE (New York Stock Exchange), but his focus this September morning is Moynaguri, a small town in the northern part of West Bengal where an investor is completing a transaction, under the watchful guidance of Ajit Day from his Kolkata office.

''Retailing has always been my strength; even when everyone else talked about mutual funds being the best way to reach small investors, I stuck to my guns,'' says the 57-year old Day, a 36-year veteran of the markets. Day's rural retail thrust covers the expanse that is Bengal; overall, he runs 20 centres in the state.

His task, Day says, has been made easier by technology. As a first step he set up his brokerage's website and started an online depository service; then, in a rural variant of Schwab's click and brick strategy he sent out an army of sub-brokers to the areas they hailed from to ''educate and evaluate their own constituencies''; and finally, when NSE's it arm was ready with an application that could enable the sharing of information and trading over the Day's brokerage borrowed it and installed it across its 20 centres.

Now, emboldened by Day's success, large brokerages like Kotak and Investmart are trying to get their foot in to the market. Day, whose son-in-law and daughter help him run his brokerage says they won't be able to match his costs. ''I've never employed a suit in my office,'' he grins.

-Debojyoti Chatterjee

Four Teen Types For Tyros

Can you spot the vibrant vanguard in this picture?

For paranoid parents, teenagers spell just one thing, trouble. To marketers, they constitute a growing consuming class. And to researchers? Well, to that egg-head heavy species, teenagers make up a great file of study. After studying 1,500 'older' teenagers (ages 15-19), in Delhi, Mumbai, Chennai, Bangalore, and Kolkata, the NFO-Coke Teen Perspectives, a study conducted jointly by market research agency NFO-MBL, and Coca-Cola India has identified five teen-types: Vibrant Vanguards (20 per cent of the population), Conspicuous Confidents (15 per cent), Eager Beavers (23 per cent), Individual Idealists (17 per cent), and Plain Passives (25 per cent). But trends and fads flow, not top-down, but in several parallel streams. Thus, the v vanguards aren't the best audience for a fashion-label that's just being launched. ''Conspicuous confidents, with their desire for 'visual display' and showing-off should be the target,'' says Poonam Kumar, General Manager (Kid Search Division), NFO-MBL. Better still, the p passives see the c confidents as their role models. However, it is the v vanguards who are the first to adopt new lifestyle, media, and health trends, followed by the e beavers who will do anything to be seen as cool. Now, before this piece starts to sound like Dr Seuss going through a bad word-day, we'll stop.

-Shailesh Dobhal

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