The whole drama started around Jan 08,that was the time when Shortselling permission were given to FII's and even indivuduals while borrowing shares.
The day short selling scenario started , which SEBI gave the permission on the behest of going for the international practice, the whole things get messed up.
Warren Buffet once said this derivatives is nothing but a place where one only loose.
Well, I have never wrote any calls on F&O becuase I knew that it is not worth doing.Derivatives are the wrost thing to do. Actually the LOSS one gets in derivatives are Naked Loss. Naked Loss means ,according to my defination, LOSS of money without having anything remaining in our hand.Well, let me explain.....
If one buys a futures of SBI at say Rs 2000 and the lot is 150 shares..and if the margin is 25% then one needs to first pay the margin of Rs. 75,000/- and if the prices goes lower after he buys then he needs to pay the difference on the very same day.If he do not do that he loses the difference and if the difference is Rs 50 , he ends up losing Rs 7500/-...that is I call a naked loss...where one is losing the money from the pocket...........while if some one buys 150 shares in delivary then even if the price goes down he lose on paper....like just we say it is paper profit...it is paper loss.
Unless you sell the holding , delivary, there is no loss.While in futures, you need to either pay the difference or say quit and that quit can cost even 15000 or 30000 if SBI goes down by 100-200 rupees.See what happens in futures is that one would be constantly on his toes.He goes to brokers office and buys a future.It comes down but the day is not over.He thinks it will come back and he will sell at no profit no loss so he will wait.After noon the stock plunges more.He thinks he will sell tommorow as he is in loss now......and he pays the difference....now suddenly there is a bad news in market and all chances that market should open down with a huge gap...what to do now.....he will not be able to sleep well....he will get angry with his family....his wife, son, daughter, father, mother etc.....he will not be able to sleep the whole night and will call his freinds who are in stock market what can happen tommorow...etc...
So people loses the wealth as well as the health....
Never borrow from the brokers as well.Buy only with that money which you think that you have spared to put it in a Bank or post for 5 yrs....that money should be invested in stock market. I have friends who use to ask me ,” I would like to go full time in stock market and leave his job”.I told them please do not leave your job for stock market. Job will be a monthly income which one gets and the house runs with that but there is no guanrentee that one will earn in stock market.Even one has made a fortune, only one bad decision can ruin you.Never leave a job for plunging fulltime in stock market…..
Coming back to shortselling, I feel that this short selling is entirely baseless and it is a invitation of actual insider trading.Let me explain this….
Say if one FII or DII or a big investor is going to sell some shares and they know that when they will sell the prices is bound to come down….hence they will first create a short position in that stocks and after sometimes they sell stocks in market….they make a killing in both ways….he makes money when they sell stocks in profit and also make profit from which they shorted it in futures.So that is called insider trading.This is a licence for insider trading which is absolutely ridiculous.Many lay investors do not understand this and ends up losing money.
All the calls almost generated by the socalled paid analyst or chartist are just like that.They know some one is buying and hence stock will go up and hence they give a buy call…or sell call as is the case.One will often seen that these people says that some buying is going to come…..
USA, UK,China, Koera etc ha stopped short selling.There was no sense making Lehman Br almost Zero or AIG almost Zero ….but that has happened due to shortselling.The hedge funds played havoc in US market and took the price at such an abysmal level that it becomes Zero…..ofcourse that is not the fate of all company.Otherwise those price should not come back….
Remember AIG has come back from $1 to over $3….if it is a gone case then how it can comeback..and am sure it will also cross $10 in near future….
We once say that OK, the prices were high in Jan 2008 and needs to be corrected, but it doesn’t means that they should be corrected to 70% or even more……it can’t be at 2-3 P/E! that is ridiculous and as if Bull had overdone , bears are also doing the same…..
That exactly happened in EM's....Hedge funds were knowing about the Financial mess and they bulidup the short position in all EM's......and played havoc....that is insider trading.....as a simple lay investor will never know exactly what is happening in other markets world over...and when such a big magnitude of selling comes what can happen is anybody's guess......
As I have written , apart from the FII's selling which is around over $12 bn in stocks, $7 bn shorts position is created by borrowing stocks and hammering them....There is no need of money to short sell stock while money is needed to make a bull run and money needs to poured in constantly to sustain the bull run.......hence it is always easy to hammer the stocks then to take them up.......
I still feel that bull and bears are not on equal footing when it comes for the action because if bull wants Teji they needs money to pour while bears do not needs money....they can borrow!ofcourse there are risk but still it is always easy to break the market then to run the market on upside.
We have seen a great recovery on Friday and needs to see how we fare on Monday with Dow up by 368 points.Whether we see nifty 4700 by this month!
Rajeev,
ReplyDeleteI completely agree with you on this topic.
Indian gov. should also stop stop selling by this so called II's.
Actually I get a feeling that this whole issue is a big scam between authorities and II;s and the layman got butchered, retail, MF's, pension funds all lost money.
God save India
friends,
ReplyDeleteit appears market is on its last leg up for the year.4350-4450 possible on nifty (14700 sensex). You may remember my up-down-up view.2 legs have played out. we r possibly on the last and final. I am pasting below something of interest.
from colin twigs newsletter
"The press is full of headlines about stocks soaring and massive rallies. I cannot imagine too many fund managers rushing out to buy stocks in the middle of a market cave-in. That is how you lose your job. The current rally is not driven by new investors rushing in to snap up bargains. The SEC and UK financial regulators have both banned short selling of financial shares, forcing shorts to cover their open positions — causing a huge upward spike in financial stocks like Morgan Stanley [MS] and Goldman Sachs [GS].
We are undergoing another bear market rally. I often equate these to a drowning man's relief at finding a life-raft — before the realization dawns on him that he is still lost in the middle of the Pacific ocean without food or water."
You are just a perma bull rajeev. Although ur understanding of valuations might be good, valuations on a stand alone basis mean nothing when the overall climate is bad. Wall street is just going through its worst crisis, for heavens sake.
ReplyDeleteAs for banning short selling, ur arguements are ridiculous. If one were to believe u, then the ssame fund managers and insiders could have very well created long positions in futures before buying in the cash segement, thereby making a profit. Of course, then its not bad coz the stock went up isnt it ? And i hope u understand the difference between short futures and short selling in the cash market.
At the sametime, banning short selling is a prepostrous intervention in the principles of free markets. Why not ban long buying when markets go up. All authorities have done is made a bigger mess of the entire system.
I guess our friend pessimistic fool has got it wrong.
ReplyDeleteWhat Rajeev was pointing to was using insider information to short and promoters playing hand in glove with the operators which is illegal.
Just take the case Lehman Brothers & Bear Stearns, one is absorbed by a bigger fish and other went bust, how can you explain this?
Why 2 different rules when both are in the same boat. To me bear stearn was in much bigger trouble than Lehman, but it still had it ass saved,
thats called market sentiment.... no technicals, no fundamentals pure stupidity.....
dear pessimist fool,
ReplyDeleteyou still have no understanding of markets.
With every buying in cash, FII's use to sell them in futures.....I have raraly seen any LONGS created by anyone...in such a big magnitude...
Have you ever heard a long of $7 bn?
I have not heard in my stay of 23 years in Indian Stock market....
I think I can still explain writing in lenght but if I go on doing that I need lots of time for each and everybody......
Maybe you know more then me....I am not claiming anything here...I just air my analysis here....Nothing more then that....