Breaking Views: Markets At Record High, Little Gain for Investors

Booming markets are not painting a true picture, says Sanjay Pugalia, outlining the reasons for unease in investors.

Stock markets touched a record high on 24 July, but why are investors wary?

(Photo: The Quint)

Video Editor: Vivek Gupta and Purnendu Pritam
Video Producer: Anubhav Mishra

Indian share markets are on a record breaking spree. They touched an all-time high on 24 July, with Nifty trading consistently above 11,000 points over the last few days.

Yet, the investors are not celebrating. Wondering why? Let’s take a look at the buzz in the market.

Three to Seven Companies Fuelling Market Boom

The gains are mostly being fuelled by three to seven major companies. Out of the 50 companies registered in Nifty, only seven are in the green.

Remaining 43 are on a downward trajectory and some of them are faring very poorly.

Similarly, if you shift your attention to Sensex, out of 30 companies, only a dozen have breached the last record while the remaining are slipping. These dozen companies saw a swell in market caps and are aiming for the sky.

On the other hand, if you take a look at the mid-cap and small-cap shares – which were also on a high few days back – then, you'll find that these shares are over-valued and hence, not sustainable, having dipped by 20 percent -50 percent. For 80 percent of the companies trading on the stock market, this is a catastrophic fall.

Big Companies Suffering Huge Losses

Shares of a renowned companies like Jet Airways, Adani Power, Reliance Communications and Jaypee group dropped by as much as 80-90 percent.

Shares That Suffered Huge Losses:

• Jet Airways - 53%
• Adani Power- 55%
• Reliance Communications- 60%
• Jaypee Group- 66%
• PC Jewellers- 90%
• Vakrangi- 87%

Some of the companies also have allegations of financial wrongdoings against them. Companies like PC Jewellers and Vakrangee have been linked to scams recently.

So, in reality, the shares are performing poorly even if the top-line indices show that the market is performing strongly. The highs of share market can be very misleading because despite real economic concerns, the market continues to perform well.

Devaluation of Rupee

Devaluation of rupee has converted the gain of foreign investors into loss. Which means, the return on investment was almost zero. This is the reason why foreign investors are pulling their investment out of Indian markets because they feel that US and other countries are performing better than India.

Why Only Handful of Shares Are Performing Well?

Of the many reasons for this, first and foremost is an additional surveillance mechanism started by SEBI in the last few days. This mechanism increased surveillance on the companies, the shares of which were highly volatile. This disturbed the mood of the market.

The second reason is that the auditors of many companies are resigning which indicates that they no longer have trust in the balance sheet of the company. They are hesitant to sign those balance sheets because the government has tightened norms.

NPAs, Crackdown on Mutual Funds, Oil Prices Cast Doubts

Then, there was a crackdown on mutual funds. Mutual funds companies in the last few days started investing money from large cap schemes in small and mid-cap companies, compelling SEBI to intervene and call for an end to this.

Five different classifications were made and mutual fund companies were forced to sell some of the assets which caused a drop in the market.

RBI also made a statement that the market is overpriced. The intention behind warning retail investors was right but it had an opposite impact on market.

The last factor is the poor situation of govt banks. NPAs are on the rise. NPAs have been valued at Rs 10 lakh crore which is a record and has led to insecurity in investors.

For now, foreign investors are also keeping an eye on the price of crude oil, and global indicators are not instilling any confidence either. There is a trade war intensifying between USA & China and we are unclear which side is winning.

2019 Lok Sabha Polls Adding to Investors’ Worries?

Since 2019 LS polls are almost at the door, if the government announces a populist scheme which will increase burden on the government's coffers. The foreign investors will definitely not be happy with it.

All these indicators lead to a conclusion that there is a sense of nervousness in the market. Only a handful of companies can't drive this upward trend of market for long.

An incomplete picture of a booming market is being projected which is in no way real. The sentiment in the market is not good which is a sign of worry. And that's where people need to tread with caution.