3 products are changing the market dynamics in the non debt segment in India, and they cannot be ignored:
- huge sale/missale of SIPs (1.25 crore SIP of an average of 4000Rs. )
- even bigger sale/missale of ULIP and classic endowment plans
- rocking growth of funds under PMS
these numbers are huge, real huge and approximately Rs. 10,000 crores from these 3 sources alone are chasing about 125 odd companies. This is the full range of all companies in which fund managers invest. divided it means about Rs. 80 crores per company – not very difficult to understand what such an infusion can do to the price of a particular scrip. Far more importantly this also means that a company’s shares get bought IF THE reputation, the education of the CEO, the contacts,…
NOT NECESSARILY the FCF, RoE, RoCE, Ronw – these are for lesser mortals I guess. ‘
Take a company like Mahindra Holiday Resorts. Impeccable reputation. Head of the Bombay club. Keshub Chairman of Union Carbide, but the man who remained untouched. Mahindra – a company about whom NONE, none of our blue blooded research organisations EVER come out with a ‘sell’ report.
So the number of shares held by mutual funds went up from 37 lakhs in Dec 2015, to 68 Lakhs in Dec.2016. Not bad at all. Unjustified? well, well.
If I were an analyst I could easily create a report saying “good management, play on rising income, increasing size of middle class, more disposable income, good funding arrangement, happy and satisfied customers (ok we both know that is a lie, but so what), increasing business ( referral)…..” so it is a great business and justify the purchase.
It would be wrong that is all.
I just singled out MHRL. Go and do some research. Many companies doing badly can be ‘window-dressed’ to justify. The advantage is that this will ensure that the price NEVER will fall. It just cannot. The smaller the floating stock, the easier to manipulate the share price. We have seen all this in the 1980s and ’90s.
We are the gen which dealt with brokerage houses, research reports, price support, ………..and what have you..
Reliance MF has been holding for more than a year, Hdfc is the new entrant with big buys…are these an indicator that something is going to change? Or is it an indicator that friends are buying shares of companies belonging to friends? I do not know.
Well I could have said that in Mar 2016 also. Let’s see.
See the increase in mutual fund holdings in Hdfc bank, Cholamandalam, Coromandel International, etc. – it is almost impossible for these shares to fall as long as the SIP party goes on. You need to track MF holding in all the shares in your portfolio – and you will suddenly know why the fluctuation in the share price has gone down – look at Cummins, the price may be down, but the volatility is gone.
PS: I trade in MHRL real often. Rarely hold a longish position for too long. I have long term positions in Hdfc bank, Chola, Coro, Cummins,
One more real mega change that is happening is the NPS.
What started off as an Index fund it is now an active management that is set me worrying.
Will the NPS become the next UTI or LIC?
Will the government direct it to buy X shares and sell Y shares. What about promoters doing it themselves.
With such a pathetic index construction, and such a small universe of 130 shares to choose from, we are in for a HIGH times.
Could these mindless SIP and ULIP keep pushing the market higher and higher – reducing expectations and increasing risk ?
Scary. At least I am fearful.
If the ultimate value investor is coming with an IPO, it is not a great signal.
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