Sunday, March 8, 2009

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Domestic Institutional Investors Just Can’t Stop Buying

If you ask any businessman about who has the money in these difficult times, he will say that the customer has the money. But if you ask me the same question to me I will say that it is the Domestic Institutional Investors (DIIs) in India that have the money. And they demonstrate it everyday by buying stocks on the Indian bourses.

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If you are wondering who these DIIs are, they are just opposite of FIIs. FIIs are foreign Institutional Investors meaning the institutional investors trading/investing stocks from other countries. Where as DIIs are the institutions within our own country. Examples are LIC, UTI bank and several public sector banks/insurance companies.

In fact these institutions get an official request from the government of India to do those transactions mainly on the buy side to support markets during the turbulent times. Turbulent times are when the markets only go down due to excessive supply from all market participants. Do not take its literal meaning the share market context.

One must have known a slang word in Telugu used to best describe these type of investors. I am just reversing it to spell it as – puluba. These investors have lot of puluba in terms of money that they keep showing it on the bourses when every individual investors on the Dalal Street has no clue as to why they behave so.

What caused this from 2004?

The story dates long back to 2004 when UPA has won elections on the back of support from the CPI or left front. UPA was formed from coalition between Congress party and left front parties. Just as the new government came into action, left front already started making comments about their plans and control over the government making reforms in the economy. This concerned investors and more on the FIIs. They started selling stocks in frenzy. That was what caused popular stock market crashes in those days on Bombay Stock Exchange.

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By that time already there was a good bull market and many investors who were bullish are affected as usual. Some committed suicide and some must have staged rallies as well. Anyway that has made this government (which is still under the same administration from those times) to consider the importance supporting the market through any means. The government based institutional investors like LIC, UTI bank are the companies that are obligated to support the markets as much as they can under all technological limits.

As I get the market statistics on my mobile phone from Indiabulls (my brokerage service), I get to know the daily net transactions of DIIs and FIIs. FIIs not having any choice ended up being net sellers all of the time, while the DIIs are net buyers most of the time. This shows a definite trend which is down trend. The counter trend starts when FIIs become net buyers for more at least two consecutive days. DIIs can remain buyers or may become buyers, but that does not matter for the market direction.

Let us check our next good bet(s)

This time I changed the charts to also add the Bollinger Bands along with usual volume and moving average indicators. The chart for the Cambridge solutions shows its usual consolidation pattern in the midst of a general market meltdown. Its trend is strong as shown by the white candlesticks made every day. That may also mean that it can surge suddenly upwards on a good day or two.

cambridge solutions candlestick chart 06 march 2009Image Source

Then the chart for nifty shows that it has clearly broken the trend line and set the tone for the new down trend in the long term trend. If one wants to short the term, it is better to do it on every rise. Ha ha.. does it sound similar but opposite to traditional saying “buy on every dip”?

nifty candlestick char 06 march 2009Image Source

This time I am also featuring my most tracked exchange traded fund these days. That is the gold benchmark exchange traded scheme. Its scrip id is goldbees on NSE. It can be traded on the national stock exchange just like a stock. The chart for this shows that it just touched the support at the moving average in between the Bolliger bands. I feel that it crosses that and touches the lower Bolliger band before resuming uptrend. We cannot tell when it will do so. But we can see that 1400-1450 may be the good price to catch it to ride the next wave if there is going to be any. Many financial experts give a green signal for Gold. Then why should we ignore the opportunity when it is still one.

goldbees candlestick chart 06 march 2009Image Source

Good luck trading!

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