Stock Shastra

‘It never rains but it pours’ – This could not have been more true, especially in the current situation for the stock markets. Even as the markets have been spooked by the global uncertainties, domestic concerns like inflation, high interest rates etc have added to the concerns. And as if this was not enough, we have another concern to add to the ever-growing list: the falling value of rupee. The Indian rupee has depreciated by about 12% since July and touched the psychological mark of Rs. 50 recently.

So, how does this falling rupee hurt you as an investor?

We invest our hard-earned money in stocks hoping to make a decent return out of them. When the stocks we invest in do well, we feel good and even pat our own back. However, if they don’t do well, we are quick to pass the buck on some external factor, “Oh! It was the FIIs , they pulled the money out and before I knew it the stock was down 35%!”- a common conversation for budding investors with a sip of coffee. However understanding FII investments and their movement is not as difficult as it seems.So, how does the FII movement affect the stock market? Why do they pump in or pull out money? And how can we go one up on the FIIs and profit in the Stock Market?

The last week was full of action for the stock markets. The week opened with Sensex, the benchmark index crossing the 19,000 mark for the first time since the peak of January 2008. More was to follow as the rally has continued for the next few days and led to Sensex crossing Sensex@MRP for the June 2010 quarter which stands at 19295.
Sensex@MRP gives you an indication of whether the Sensex is fairly valued or whether irrationality is driving the markets. It is the intrinsic value of Sensex determined primarily by the earnings of the Sensex companies. So, the logic here is, if Sensex goes above Sensex@MRP, it signals that the market is moving from being rational to being irrational. It means you have to become cautious because if it continues to rise further, this rise is not justified by increase in earnings; it would thus be time to start selling [...]