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Stocks are down. Bond moarket is down. Then where is the money?

Stcok prices are subdued these days - said to be reflecting a general low profitability. Bond markets are also down, and expected to be so as interest rates go higher. Then where is all the money being parked?

http://www.thehindu.com/opinion/editorial/sharp-correction/article22952347.ece?homepage=true

Also please explain when interest rates are higher, as during inflation, should not bond yields go low as many might go for the safe returns of gov-securities? I am thinking may be rise in inflation always outdoes the ineterst in rates, which could be a reason for overall movement away from bonds. But still where do people park their money during such low times in money market?

Comments

  • edited March 7
    Couldn't resist.
    There are multiple factors shaping the capital market currently and concentrating only on 2-3 like bond, interest rate and inflation etc is rather simplistic.

    However, let me try. (But I too am being excessively facile)

    As inflation goes higher, the central bank will increase interest rates. Risk averse people will start pulling out money from bonds and putting them in bank accounts (which are safer and will start providing equal or higher returns). This will cause of glut of bonds in the market and over supply will cause the prices to fall thereby increasing yield (not to mention the FED unloading their huge tranche).

    As yields rise, slightly risk taking people will start investing in bonds for their secure returns. They will pull out money from equity market and cause the stocks markets to fall.

    People who are extreme risk takers will use this drop in equities as an opportunity to buy good stocks at cheap prices and build a long term portfolio. However, the downside risk remains, because no one knows where the bottom is and there is common adage wrt corrections or bear market - never attempt to catch a falling knife.

    So, people are parking money as per their risk appetite. (And we haven't even talked about gold, commodities, real estate and crypto currencies)

    Coming to our specific market, there were factors which led to it's fabulous rise - demonetization, global bull run, global economy, national political stability and rise of BJP and many more factors.
    Similarly there are many factors for the current carnage - wars (real and trade wars), bond yields, qe tapering and reversing of interest rate cycle, commodity cycle, LTCG, slowing of post demonetization money, weakening of BJP in bypolls, PNB scam, intention by government to exceed fiscal deficit limits, weakening of rupee from 63 to 65, the meteoric and unsustainable rise of mid and small craps in 2017 and many more factors.
    (Curiously enough, the market rose when corporate earnings were in ruins and now that they are improving the stock market is tanking)
    A Lion doesn't concern himself with the opinions of the sheep.
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  • edited March 7
    People is a wide and broad term.Not all people are investors.The majority of Indian salaried class will still keep their money locked in savings bank accounts and FDs.The bond market is still a very closed market as far as the participants are concerned and the stock market has a mere 2% resident retail participation.Interest rates and bond prices have a self explanatory inverse relation as the bond prices of the existing gsecs/bonds become less attractive.Now if you are asking where does "smart money" go?then you have to understand that HNIs and other big ticket investors also make money in falling markets through their hedge funds/PMS/prop trading who have great annual returns. Infact the late 80s saw a large some of the current big trading firms make huge amounts of money for their clients in the crash of 87 in the US and onwards. Also these rich guys continue to retain a diversified portfolio which includes debt(now valuable),metal/commodites/real estate,fixed income instruments,trusts,antiquities and obviously buying larger equity chunks in a more realistic or now attractively valued stocks in a sluggish or bear market!A similar trend is now starting to show amongst the bigger Indian investors albeit they are still too small in size and number compared to their western counterparts.
    History will be kind to me for I intend to write it.
  • edited March 7

    Stcok prices are subdued these days - said to be reflecting a general low profitability. Bond markets are also down, and expected to be so as inselling rates go higher. Then where is all the money being parked?

    http://www.thehindu.com/opinion/editorial/sharp-correction/article22952347.ece?homepage=true

    Also please explain when interest rates are higher, as during inflation, should not bond yields go low as many might go for the safe returns of gov-securities? I am thinking may be rise in inflation always outdoes the ineterst in rates, which could be a reason for overall movement away from bonds. But still where do people park their money during such low times in money market?

    FII selling activities are more than purchase in recent times resulting in net outflow. Also Stock market movements are often driven by speculation and investors perception. Few Analysts believe that many stock prices are still overvalued compared to their fundamentals thus correction is likely to occur. Further banking scams have resulted in fall in Banknifty by 12-13% since Feb.
    Musafir hu yaaron... na ghar hai na thikana... mujhe chalate jana hai, bas chalate hi jana hai.........
  • edited March 7

    Stcok prices are subdued these days - said to be reflecting a general low profitability. Bond markets are also down, and expected to be so as inselling rates go higher. Then where is all the money being parked?

    http://www.thehindu.com/opinion/editorial/sharp-correction/article22952347.ece?homepage=true

    Also please explain when interest rates are higher, as during inflation, should not bond yields go low as many might go for the safe returns of gov-securities? I am thinking may be rise in inflation always outdoes the ineterst in rates, which could be a reason for overall movement away from bonds. But still where do people park their money during such low times in money market?

    FII selling activities are more than purchase in recent times resulting in net outflow. Also Stock market movements are often driven by speculation and investors perception. Few Analysts believe that many stock prices are still overvalued compared to their fundamentals thus correction is likely to occur. Further banking scams have resulted in fall in Banknifty by 12-13% since Feb.
    yes bro but FIIs and other big investors/traders continue making money multifolds in a falling market by using multiday derivative shorts.So be it PNB or banknifty in general they continue milking profits or atleast hedge losses/potential losses if they already have long positions in the same stocks.

    History will be kind to me for I intend to write it.
  • Stcok prices are subdued these days - said to be reflecting a general low profitability. Bond markets are also down, and expected to be so as inselling rates go higher. Then where is all the money being parked?

    http://www.thehindu.com/opinion/editorial/sharp-correction/article22952347.ece?homepage=true

    Also please explain when interest rates are higher, as during inflation, should not bond yields go low as many might go for the safe returns of gov-securities? I am thinking may be rise in inflation always outdoes the ineterst in rates, which could be a reason for overall movement away from bonds. But still where do people park their money during such low times in money market?

    FII selling activities are more than purchase in recent times resulting in net outflow. Also Stock market movements are often driven by speculation and investors perception. Few Analysts believe that many stock prices are still overvalued compared to their fundamentals thus correction is likely to occur. Further banking scams have resulted in fall in Banknifty by 12-13% since Feb.
    Tum abhi bhi ho bhai
    He's alive!
  • Stcok prices are subdued these days - said to be reflecting a general low profitability. Bond markets are also down, and expected to be so as inselling rates go higher. Then where is all the money being parked?

    http://www.thehindu.com/opinion/editorial/sharp-correction/article22952347.ece?homepage=true

    Also please explain when interest rates are higher, as during inflation, should not bond yields go low as many might go for the safe returns of gov-securities? I am thinking may be rise in inflation always outdoes the ineterst in rates, which could be a reason for overall movement away from bonds. But still where do people park their money during such low times in money market?

    FII selling activities are more than purchase in recent times resulting in net outflow. Also Stock market movements are often driven by speculation and investors perception. Few Analysts believe that many stock prices are still overvalued compared to their fundamentals thus correction is likely to occur. Further banking scams have resulted in fall in Banknifty by 12-13% since Feb.
    Tum abhi bhi ho bhai
    Hahaha. Ha jinda hu abhi bhi. Break liya tha last two years. Aakhari baar try karunga iss bari upsc vacancy ghata te ghata te recruitment karna band karde uske pehle. :smiley:
    Musafir hu yaaron... na ghar hai na thikana... mujhe chalate jana hai, bas chalate hi jana hai.........
  • edited March 7
    Ok so what's happening is (simplistically speaking, and not counting people with high risk-apetite)

    a) domestic investors have parked their money in saving accounts.
    b) foreign investors have been taking money out of the economy.
  • edited March 7
    And investments in bonds would be risky because of fears from inflation, because say inflation is 5%, bond yield is 8%, as inflation soars to 6%, margin is reduced from 3% to 2%. Am I right? Lowered margins are the risks in bond market. And yield will rise to coerce a self-correction in margin.

    One repercussion of lower margins in bonds would be on banks' profitability, as they are a major investor in bond market.

    And if bonds yields don't fall down for a considerable time, the situation would force RBI to increase interest rates as current high yield is fuelled purely by inflation/ market forces and RBI's rates don't reflect the higher yield as of now. Please confirm or correct me.
  • Stcok prices are subdued these days - said to be reflecting a general low profitability. Bond markets are also down, and expected to be so as inselling rates go higher. Then where is all the money being parked?

    http://www.thehindu.com/opinion/editorial/sharp-correction/article22952347.ece?homepage=true

    Also please explain when interest rates are higher, as during inflation, should not bond yields go low as many might go for the safe returns of gov-securities? I am thinking may be rise in inflation always outdoes the ineterst in rates, which could be a reason for overall movement away from bonds. But still where do people park their money during such low times in money market?

    FII selling activities are more than purchase in recent times resulting in net outflow. Also Stock market movements are often driven by speculation and investors perception. Few Analysts believe that many stock prices are still overvalued compared to their fundamentals thus correction is likely to occur. Further banking scams have resulted in fall in Banknifty by 12-13% since Feb.
    yes bro but FIIs and other big investors/traders continue making money multifolds in a falling market by using multiday derivative shorts.So be it PNB or banknifty in general they continue milking profits or atleast hedge losses/potential losses if they already have long positions in the same stocks.

    Yes. Big investors will always profit irrespective of the direction of the market as they have the experts for better prediction, capital and network to move specific stocks in desired direction.
    Musafir hu yaaron... na ghar hai na thikana... mujhe chalate jana hai, bas chalate hi jana hai.........
  • TLDR acche din
    “The road to power is paved with hypocrisy, and casualties. Never regret.”
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