Some Thoughts :
Although equities, commodities have lot of considerations like yield, value, cash flow, crop, inflation, demand etc etc but in the end equity is a piece of paper and commodities is a contract but all these have a value if somebody is ready to pay a price ! for it ! . So in the end its all about MONEY.
The curiosity about money influence on equities urges me to find some co- relation of money with markets and especially Indian capital markets. Its a known thing FII money governs India indirectly . This is how a brief observation comes into the blog today comparing INR/USD with Sensex.
Views below can be termed logical or HIGHY Fictional and Stupid !!------Comments Invited!
INR/USD and Sensex :
FIIs convert Dollars to Rupees to invest in Indian Markets. Worldover a major concern is investment in Dollars is risky over a period of time as the currency can detoriate !
Ideally FII money should come in India at high Dollar rates !!!!
FII money would go out when Dollar dips to low values. !!
LETs term this FII dollars to be SMART MONEY which finds more money.
Now lets c some major points on Sensex from 2003 with peaks of dollar as that could trigger money push into India ideally !
Jan -May 2003 - USD/INR roughly 47-48.
Sensex moved from 3000 to 6000 and dollar dipped till 43 by May. mkts corrected to 4200 after that.
July - Sept 2005 - USD/INR 46
Sensex again moved from 5k to 12k and dollar dipped to 44-43.5 . mkts corrected to 8800 after that.
July - Sept 2006 - USD /INR 46 -47
Sensex moved from 9k to 21k and dollar dipped to 39. mkts corrected to 13k.
Maybe this is confusing but from the data it seems FII dollars starts entering into India when Dollar is quoting at a price of 45-47 or tops out and this money creates the next bull run !!! .
Lets try understand this flow of money with an example of how SMART MONEY has made more Money.
1) 1 Lakh Dollars of FII - SMART MONEY .
USD/INR - 46-47 in Aug 2006 .
This money is put into Sensex at 9-10k . So money put in is 46 lakh rupees.
Now Sensex comes till 20-21k in Oct 07-Mar 08 .
46 lakh rupees is now double or more at 90 lakh rupees and this money is now pulled out.
Now USD /INR 39-40 .
So 90 lakh rupees can now buy 2.25 lakh Dollars.
So DUMB MONEY if would have stayed in Dollars then it would have lost 15 % in value !!!
SMART MONEY is now 125 % up in 1.5 years or more instead of being 15 % down !!!
WELL now people would ask Where did the Smart Money go between Jan to August ! . For the record Crude was 90-100 in Jan and 145 + by July. !!!
In simple words FII money has been very smart with India !!
Yet again Dollar is about to peak out at 44/45/46 . Doesnt this tell us SMART MONEY and all those dollars all set to come back to India and Asia in next few months to start the next BULL RUN in emerging markets!!!!
Truth is stranger than fiction.
In the next similar post in coming days we will see two camps - Optimistic /Pessimistic Indian Investor. Too late to write a whole article on it.