Friday, May 18, 2012

Some markets that FIIs prefer over India

Ever since India started undertaking economic reforms from 1991, the FIIs have shown a great interest in investing in India. Their combined buying/selling power now decides the trend in the Indian stock market.

In a post last month, the Nifty 50 index was compared over a 2 years time frame with stock indices of the other three BRIC nations. Russia’s RTSI outperformed the Nifty by a small margin, but was much more volatile with higher peaks and troughs. But the Nifty outperformed Brazil’s IBOVESPA by a small margin and China’s Shanghai Composite by 25%. Economic growth, of which China is the undisputed leader among the BRIC nations, did not necessarily translate into stock market performance.

So, why are the FIIs selling in India? Because they can invest anywhere they want, and a few stock markets are outperforming India by a fair amount. Here is a comparison of four global indices with the Sensex (in green) over the past 2 years:

S&P 500 vs. Sensex

SnP vs Sensex_May1812

After underperforming the Sensex for the first 7 months till Dec ‘11, the US S&P 500 index has outperformed the Sensex by a good 20% till yesterday’s closing. The recent correction has dropped the index below its rising 200 day EMA, but the S&P 500 has still gained 15% over the 2 year period while the Sensex is down 5%.

The RSI is deep in oversold territory, which could lead to an upward bounce.

IPC (Mexico) vs. Sensex

IPC Mexico vs Sensex_May1812

Mexico’s IPC index has outperformed the Sensex by almost 23%. Despite the correction in May ‘12, which has dropped the index to its rising 200 day EMA, the IPC has gained 18% over the past 2 years – slightly outperforming the S&P 500.

The RSI is almost at the edge of its oversold zone – from where it has bounced up every time during the past 2 years.

KLCI (Malaysia) vs. Sensex

KLCI vs Sensex_May1812

Malaysia’s KLCI index has outperformed the Sensex by 20%. It has bounced up after dropping to its 200 day EMA, and has gained 15% in the past 2 years.

The RSI is showing positive divergence by touching a higher bottom while the KLCI dropped to a lower bottom.

Jakarta Composite vs. Sensex

Jakarta vs Sensex_May1812

Indonesia’s Jakarta Composite index has been a stellar performer, attracting a lot of FII inflows. It has outperformed the Sensex by a whopping 45%. The recent correction has dropped the index close to its rising 200 day EMA, leaving a 40% gain over the past 2 years.

The RSI is just above its oversold zone from where it has bounced up on all three previous occasions.

There are two interesting points to note from the above charts. The Sensex has been in a bear market since touching its Nov ‘10 peak, forming a pattern of lower tops and lower bottoms. It is also trading below its falling 200 day EMA (not shown in charts above). However, the other four indices are all in bull markets, forming patterns of higher tops and higher bottoms.

There is an old stock market adage: “Sell in May and go away.” Investors and traders often take a break from the markets during the summer months and go off on vacations. Though there is no scientific basis to the adage, global markets appear to have taken the adage seriously in May ‘12. (In May ‘11, US and Mexico markets had corrected, but Malaysia and Jakarta had remained flat.)


Din said...

real eye opener ....


Rishi said...

FM and PM should see and clarify this bcoz they are the only responsible for this mayhem

Subhankar said...

@Din: Thanks for your comment.

@Amitayu: Thanks to the scam-related arrests of colleagues in the telecom department, the bureaucracy has become ultra-cautious and are reluctant to push files. The opposition from cantankerous allies has not helped in decision making either.