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China in Your Hand

I had tweeted this a few days back, and there is no change in views






FII: Battered Bruised and Humiliated

When I look back at the years goneby and all the learning that my mind was subjected to has left me convinced about one thing. And that is, the popular (POP) beliefs and knowledge are always a part of a propaganda by some interest group.

I have read it in books and forums and articles etc., that any given Capital Market at any point of time chiefly consists of two groups, namely, the Smart Money and Dumb Money. Smart Money is usually the Institutional Operator, who on behalf of the institution that he represents, enters into contracts for sale or purchase of an asset or commodity. While dumb money, includes the novice traders and investors who generally lack any insight about the Market Internals.

But over a period of time, having keenly followed the institutional operators, I have come to the the conclusion, that, there can’t be anything farther from the truth to say that Institutional Operators have any special insight into the working of the market internals. They are as naive, as dumb, and as impatient, as a single contract trader. What keeps them afloat is the money management and the fact that they could have free supply of money available to them, due to the goodwill of the funds or institutions that they represent. While a single contract trader is always under capitalised, so to say.

The Institutional desks were seen taking short positions in last three four trading sessions averaging around 5760. Yesterday, they were seen running for cover! Actually they were running to cover their short positions.

I don’t know if the people manning the Institutional desks are school dropouts or clerks, but they lack a very basic understanding of the Market Internals. I would not hesitate to say that the major source of noise in Indian Capital Markets are the Institutional Desks. Seriously, these guys have no idea of why are they doing- what they are doing or whether it could ever make some sense. After all to loose a few hundred crores in derivatives, is no smartness at all….

Nifty could go all the way to 5938 – 5955, or in some exceptional circumstances could go all the way upto 6017 – 6025, before continuing on it’s final corrective journey.


Between the Limits

The day, 5th Sep 2012, began as expected, Nifty gapped up at 5815 at 9:15 am. By 9:20 AM it had slipped below 5800 to 5794.60, creating a black Shaven Head/Shaven Bottom indicating weakness. Most of the momentum indicators in 5 minute charts, were in Sell mode.The average Elliott Wave enthusiast would have marked the correction as sub-sub-minute “a” .Quite Normal, since the closing gap was small, of about 27 points, and Nifty was overbought at that level, it was quickly retracing to fill the gap, a sign of impending bullishness for the rest of the trading session. By 9:25 it had not only filled the gap by registering a low of 5777.95, it had formed a black hammer in 5 minute charts. The Elliott Wave enthusiast would have marked it as “b”, suggesting more weakness to follow, and for an intra day scalper it was time to act. The next candle was a gravestone doji, indicating to a scalper that “all is well”.

The time was 9:30 am, and in next five minutes another long black shaven head candle formed in the five minute chart. The scalpers would have jumped on their seats, and thanked the Forces beyond the clouds, for showering their blessings. The Elliott Wave enthusiast would have been heard as saying, see a simple Zig-Zag! The candle had a small lower shadow and the time was 9:35 am. by 9:40 a white candle had formed, with a top little less than half way of the previous black candle. The Elliott Wave enthusiast would have thought to himself, “These 1st waves are always kind of renegade”. The time is 9:45 and another candle with black body and a little longer lower shadow was formed. People monitoring charts would have started to reach out for the first cup of coffee since the market opened. The time is 9:50, another white candle with no lower shadow and a small upper shadow came into being. Some of the people looking at the price tickers would have yawned.

While rounding up previous day’s activities and analyzing the EOD data, it had been pointed out that Nifty would want to climb up above 5800 as soon as Market opened lest the DIIs, who have been selling in cash market continuously since December 2010, would enter a large Sell Order right in the morning itself. It was also observed, that FIIs were taking little interest in the derivatives segment, so probably their buying occurred in the second half.

The time is still 9:50:00 am. All of a sudden, Nifty Spot which was trading at 5770 odd levels begins to fall. 5770, 5730, 5630, 5625, 4900, 4888, 5625. The time is At 9:50:58. “Shucks some stupid guy entered a large Sell Order right in the morning!”…”Or is it deliberate”, I ended up conversing with computer. If it could have winked just once in it’s lifetime, it would have done that. “But why was the Lower Circuit not activated at 4888”, I wondered? Having spent endless nights (and days) trying to program computers and handhelds, the answer instantly dawned upon me. The freeze was manual!

Not knowing what had happened, I frantically called up some numbers, including that of the modern bull, “Dinesh Rishi”. The information I could collect at that moment was that spot market had freeze – but futures were trading normally.

Meanwhile market resumed trading, there was long white candle in the 5 minute charts with Shaven Bottom, the open and low was at 5625.60. The high of this candle was 5765.30. this was followed by another white candle much smaller than the previous one, which made a high of 5807.70, and then the usual sideways stuff for the rest of the day.

By about 11 O’clock the press release from NSE informed that they had found the fat scapegoat. It was none other than little known – much appreciated Emkay Global Financial Services Ltd. And according to latest reports, a junior executive had entered 59 “erroneous orders” where he confused himself with the price as quantity and vice versa. A modern stock market joke. One peculiar thing about us, the Indians is that our confessions and revelations are worse than the jokes that we crack. Has anyone has ever heard of a world famous Indian Joke? No. But there are several jokes, that are famous around the world, and which involve an Indian. The NSE Press release about the Lower Circuit is one such joke.

Ravi Varanasi, Head-Business Development at NSE said,
“We have taken immediate action. Emkay Global Financial Services was asked to close out its positions arising out of erroneous trades, which they have done. The exchange then disabled the member from trading. There is no question of any glitch or malfunctioning in NSE’s systems. The broker’s dealer put in an erroneous quantity in the orders, which is being investigated.’’

Mr. Varanasi also said that the circuit filter was triggered at 10 per cent and the cash market was stopped. The orders that were already in the system were executed in the next few seconds. The market was reopened within a few minutes since the price movement was on account of erroneous trades.”

The mandatory two hour gap before reopening wasn’t exercised, because, Mr Varanansi felt that there was no panic in the market. The Emkay Global guys were forced to square off their positions at large profits. And now the rumor is that Emkay Global has lost 62 Crores due to the “erroneous orders”. Take that.

Emaky Global Financial Services Ltd., is a BSE listed company with market capitalisation of 76 Crore. The book value is 55 as per the balance sheet of 2011-2012. Th unaudited results published for the first quarter of 2012-2013 reveal that the company was incurring heavy losses. The P/E ratio is coming out to be -45 against an industry standard of 16. The stock has been in a downtrend since May 2011. How come a brokerage firm incur losses?


Top Indian Bourse Fights Rivals With Retail, Volatility

VIX Futures
National Stock Exchange of India Ltd. will offer products to lure individual investors and trade volatility futures to prevent MCX Stock Exchange Ltd. from ending its dominance of Asia’s fifth-biggest equity market.

The NSE plans to widen its range of fixed-income products, which include government and company debt, to attract so-called retail investors, Ravi Varanasi, the exchange’s head of business development, said in an interview on Sept. 6 in Mumbai. The bourse is awaiting regulatory approval to offer futures on India VIX, a measure of expected market volatility, he said.

“The NSE is facing a serious and credible challenge for the first time in its existence,” U.R. Bhat, managing director of Dalton Capital Advisors India in Mumbai, said in a telephone interview on Sept. 6. “It should act now instead of resting on its leadership position, which can fade away very fast.”
Membership Fees

MCX-SX was awarded its stock-trading permit in July, almost four years after it began operations. The Mumbai-based bourse said Sept. 5 it will charge members a total 2.5 million rupees ($45,130) to trade shares and equity derivatives, with the cost doubling after the introductory offer ends Oct. 18.

The NSE has a new membership fee of 500,000 rupees, while the BSE charges 250,000 rupees, according their websites. The NSE and BSE also seek deposits of up to 15 million rupees and 3 million rupees respectively, their websites show.

The NSE has not stated whether it would revise its fees. The bourse’s share of the total transaction cost per trade is about 1 percent, which is “one of the lowest” levels in the world, Varanasi said.

MCX-SX, which hasn’t disclosed its transaction costs, is hoping to sign up people located beyond the 2,000 cities and towns where capital-market access is currently available, the bourse said Sept. 5. The exchange will start trading equities in November, Vice Chairman Jignesh Shah said in July. He is due to speak to reporters in Mumbai today.

Setu Shah, a spokesman for MCX-SX, declined to comment on strategies the bourse might explore to fight its rivals.
‘Significant Possibility’

The NSE’s plan to offer more fixed-income products is a move to appeal to a relatively untapped market of risk-averse individual investors, Varanasi said. Indian households had financial savings of 9.7 trillion rupees in 2011-2012, about half of which were invested as deposits with commercial banks, central bank data show.

“Fixed income is an area of significant possibility,” Varanasi said. “India doesn’t have a properly developed fixed- income market for retail investors.”

About 25 million Indian invest directly or indirectly in the capital markets, or 2 percent of the nation’s 1.2 billion people, according to a survey in July last year by the National Council of Applied Economic Research. That compares with 9.4 percent in China, 41 percent in Australia and 18 percent in the U.K., Thomas Mathew, a former joint secretary in the Ministry of Finance’s capital markets, said in an interview on Sept. 5.

Poor participation by individual investors has held back volumes on Indian bourses, Dalton’s Bhat said.

Volumes Shrink

Trading this year of the 50 stocks in the NSE’s S&P CNX Nifty Index, at 28 billion shares, is poised to be the lowest annual level since 2007, data compiled by Bloomberg show. Some 3.8 billion shares in the 30-stock BSE India Sensitive Index changed hands last year, the lowest level in more than a decade.

An average of 672 million shares traded daily on the NSE this year, data compiled by Bloomberg show. That’s about three times the 229 million shares on the 137-year-old BSE Ltd., Asia’s oldest.

Increased activity by retail investors will help “counter inflows and outflows” from overseas funds and lower volatility, said the finance ministry’s Mathew. Inflows from abroad climbed to a record in 2010, making the Sensex the best performer among the world’s 10 biggest markets that year. The gauge had its second-worst annual loss in 2011 after funds withdrew $512 million, according to data compiled by Bloomberg.