Thursday, July 16, 2015

Why stock markets had a crash soon after Deepawali in 2010

Why stock markets had a crash soon after Deepawali in 2010

Have you ever wondered as to why the stock markets had a crash soon after Deepawali in 2010.

Yes, you may say that in 2008, it was due to global recession, failure of banks in western countries, beginning with financial giant Lehman of USA. The tremors of bank failures are still reverberating in the form of Greece Crisis, slowdown in America and Europe.

Coming back to the question as to why the stock markets had a crash soon after Deepawali in 2010. This is because the FIIs,who had been making a beeline to India in 2009 and in first half of 2010 simply decided to book their profits and to leave for greener pastures. No great rocket science here.

In addition to the contagion that may come to us through the now moribund China, we Indians should be worried deeply about the rampant decline in exports. Actually this should worry the powers that be the most but the authouities are somehow looking more concerned about keeping up the stock market index rather than the real genuine investments. 

Today, some foolish decision have been taken regarding removal of sectoral caps on investment coming in in the form of FDI and the funds invested by FIIs, and the markets bounced up.

One may wonder as to what makes the morons so happy about it. This is a recipe for sure disaster and may turn out to be very very damaging for retail investors. If this freedom is misused, there will be no stability in stock prices - giving rise to sharp volatility. 

FIIs are essentially fly by night operators and have no attachment with the companies or the scrips they invest in. When FIIs come in, stock prices jump and when they leave (like it happened in 2008 and again in 2010-11-12), the stocks fall like nine pins. Herd mentality of investors is also to blame, since they tend to invest in whatever is going up. 

Hence, for stability of markets, FIIs should be obliged to have a definite lock in period. Hello SEBI !

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