20 January, 2021

It's Stock In Trade

Sensex will be Sensex. It's not the economy, stupid.

It's Stock In Trade
outlookindia.com
-0001-11-30T00:00:00+05:53
As share prices crashed through the largest single-day decline in Indian stockmarket history on Monday, May 17, TV channels were quick to get woe-sodden sound bites from brokers and analysts. They were to look foolishly divorced from political reality as they gibbered wildly. Their utterances may have lacked a certain profundity, but this shouldn’t apply to the entire market. A stockmarket is the most efficient pricing mechanism for financial instruments. Still, it isn’t entirely accurate in the very short-term. For, short-term movements have almost everything to do with demand and supply for stock and for cash in the market and very little with the performance of the firm that has issued the stock.

The demand for cash on Monday came from some players in the market who had taken big bets on the NDA government retaining power and on share prices rising thereafter. But the other guys won and the market fell. The punters essentially had to pay for their commitments and didn’t have the cash. They had to sell shares at whatever price they could find buyers to generate the...

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