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Under the control of Foreign Institutions, where do retailers go ?

January 26, 2008

As we have opened the doors of liberalization we have also given permits to setup Modern East India Company to Foreign Institutions. Our markets are heavily owned by institutions in the past 4 years. Our analyst who has been monitoring the market very closely crunching every bit of data and talking to wizards of Dalal Street say that FIIs trapped the retail investors very badly in the recent meltdown.

In hopes of a dream budget, most retailers were expecting a pre-pudget rally to take the Index to a new high of 23,5000 [consensus on the street]. Greed and leverage opportunity by modern day brokerages, who always think of paradise, extended unreasonable credit to retailers who could never sustain. FIIs caught in the sub-prime and other credit traps came under immense pressure to remit money back home to the parent company to save the sinking ship. However, Foreign Institutions didn’t want to sell-off all their holdings as they believe in emerging market story and played a fantastic game. Data points that as retailers built positions, FIIs went short in the derivative market. Very few who trade by principles of stop-loss, exited, others held on. After slow liquidation in the second week of Jan-08, FIIs pulled the plug and unloaded massively in Cash Markets leading to crash landing. Derivates also CRASHED.

Our stupid brokers in panic started liquidating collaterals of their clients and called for additional margin from the retailer who had no choice but to liquidate his investment portfolio. FIIs continued to SELL in CASH market and caught retailers on the wrong foot. The beauty of this game is our SEBI, NSE, BSE etc barred retail Indian investors from taking fresh positions in Derivatives and only square-off was allowed. FIIs laughingly squared off his positions in Derivatives beginning Tuesday [An insider told us that leading Currency specultaor has made $500 Million for his hedge fund shorting in Indian Derivatives] and kept selling pressure in the cash market, resulting in Circuits of half-hearted stocks in Midcap category.

For instance, if an FII had to remit $1.0 billion from India, he made most of his money in the Derivatives and remaining liquidating some stocks which he may have bought a year or more ago. Only today, Friday, Retail Indian Investors were allowed fresh positions in derivatives. So you now understand why FIIs lobby with the Finance ministry for Derivatives and other instruments ?

Loopholes in the system,

  • NSE + BSE Data Published immediately after Trading hours on NSE is lot different from what appears on the website of SEBI. We have written to SEBI requesting more transparency on the same.
  • As long as an Investor [Retailer or HNI] is willing to Pay money, he should be allowed to take position in Derivatives. Most of us don’t know the basic rules of the game, yet continue to gamble and lose.

So as a retail investors, we recommend our Investors to hand-over their money to professional/ethical mutual fund managers or portfolio managers. Sooner or later it will be impossible for a retailer to trade without any knowledge as the breadth and depth of this markets increases. Questions and Comments are most welcome. Investments are not accepted.

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