Sunday, 23 November 2008

Smart domestic investors see value in falling market: Bhave

‘No evidence of any market manipulation so far’.
New Delhi, Nov. 22 “If you think that Indian investors don’t have money or are running away from the market (capital market), think again”, said the SEBI Chairman, Mr C.B. Bhave, here on Saturday.

A broad brush analysis by SEBI based on the published data of the transactions put through between September 1 and November 14, when secondary markets were collapsing, revealed that retail and high net worth investors had net bought about 25 per cent of the value of stocks net sold by foreign institutional investors (FIIs) and domestic brokers during this period.

Between September 1 and November 14, FIIs net sold Rs 22,000-crore worth of stocks, followed by proprietary trades of domestic brokers who net sold to the tune of Rs 700 crore.

On the other hand, in the same period, mutual funds net bought Rs 1,000-crore value of stocks, domestic institutions net bought Rs 16,000 crore and domestic retail and high net worth investors cumulatively net bought stocks to the tune of about Rs 5,600 crore.

“There are some smart guys sitting out there who think that this market is giving me the valuation where I need to invest. We should probably look at data a little more carefully. Data gives a more nuanced picture,” Mr Bhave said at the Hindustan Times Leadership Summit here.

On the recent trends in the secondary market, Mr Bhave said that the evidence seems to be that leveraged FII investors were going out of the market. Institutional investors whose clients had leverage were also leaving the market.

“But long-term funds like pension funds and university endowments are investing in the market. Lot of leverage is going out and equity is going into the hands of people who have patience.”

Mr Bhave also said that SEBI has so far not come across any evidence of market manipulation. At the same time, Mr Bhave also advised retail investors that equity investments carry risk, they should not leverage themselves to invest in the market and also that they should not put all their savings in equity.

On whether investors had reason to be worried about their investments in fixed maturity plans (FMPs), Mr Bhave pointed out that mutual fund investments were subject to market risk. FMPs faced heavy withdrawals, prompting SEBI to ask the MFs to tell the regulator what the underlying assets were.

“Our examination revealed that 90 per cent of the assets that MFs bought were rated AAA or A1+. We have no evidence at present that MFs were in difficulty because their underlying investments were bad.”

He, however, noted that MFs had liquidity issue and that fortunately in November the liquidity seems to have reversed.

“MFs in all had to borrow Rs 22,000 crore out of the window made available by RBI. Now I know the borrowing has gone down to Rs 4,000 crore. This is a good sign.”

Source: TheHinduBusinessLine

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