SENTIMENTS RULE THE MARKET AND YOU THOUGHT TECHNICALS?

By Ruma Dubey

It is said that Indians are stoic, do not express their emotions openly, are not overtly sentimental. Well, who says that! Look at the stock markets today… the markets are in the green and more importantly, the moods are upbeat. And this is the same market which two days ago had crashed over 800 points! The same slowdown fears remain and the same domestic issues remain. Yet, today the mood is all upbeat.

Take for example the stock Bank of Baroda. It posted the highest net loss for a quarter by any Indian bank for Q3FY16 is today the top gainer on the BSE. The stock went up over 20%. After providing for Rs.6474 crore for bad loans, up over 5 times YoY, the Bank posted a net loss of Rs.3324 crore. In terms of asset quality, Net NPA jumped up from 3.85% (YoY) to 9.68% while fresh slippages rose to Rs.15,603 crore.  Despite all this, the stock is up in the green and this is thanks to the MD, during the Press Conference stating that he has cleaned up the entire bag of bad loans at one go as required by RBI and he expects the bank to jump back to profits FY14  profits in FY17. What is even more significant is that he has informed the Govt that BoB would not be needing any more capital infusion and he also does not foresee any capital dilution for at least the next two years.

Two days ago, these very same word would have sent the stock downwards as the market would have interpreted this as it would take FY17 for the Bank to improve and that means we surely have one more quarter of pain. But instead because the mood was so upbeat today, the markets looked at this positively and applauded the cleanup act of the bank and the fact that it will bounce back in FY17.

Or take the case of the other stock which is up in the green today – NMDC. The stock is up over 15% today and it breached the 10% upper circuit today the moment it opened for trading. The market is thrilled to bits with the PSU’s interim dividend. It declared its first interim dividend for the fiscal of Rs.9.50/share which has a face value of Re.1/share. The company has fixed 25 February 2016 as the record date for the purpose of payment of first interim dividend. This hefty interim dividend is despite its dismal Q3FY16 performance wherein it posted a 59% (YoY) drop in net profit at Rs.655 crore on a 46% drop in net sales at Rs.1517 crore.

If the same interim dividend had been announced on Friday when the markets crashed, surely this stock would have been butchered down to bits but today, the very same liberal dividend policy is applauded. The same market sentiments – today mood is upbeat so the dividend looks good.

If this is not letting emotions ride the markets, what else could be? The stock market, the pure icon of capitalism is moved purely by sentiments – economics, fundamentals and all other things come much later. That is the underlying truth – markets are driven only by sentiments.

So why are the markets so upbeat today as the worries that were there on Friday remain even today? Most analysts say that today what we are seeing is a bounce back as most stocks were seen in the ‘oversold’ zone. The run up to the Budget has begun and we will soon have the ‘Budget rally’. Majority of Q3 numbers from India Inc have come in and they have been more disappointing than Q2. But for today, the market has accepted the fact that FY17 will be better; so what if we have one more quarter of pain?

Bottomline – enjoy each day as it comes and buy into quality stocks. Strong thoughts are accompanied by great emotions. An 800 points fall is good news for long term bargain hunters!