An Alternative Perspective on the Bull Run in Indian Markets
SPJCM Singapore Working Paper No. 07-02
13 Pages Posted: 24 May 2007
Date Written: September 1, 2007
This paper probes into the recent bull run of the Indian equity markets. Using capital market data and facts it is found that the recent equity markets bull run is a shallow one, especially during the last two years. It is observed that this shallowness is due to - (a) Index rally being driven by only a few big stocks with large number of underperformers; and (b) Increasing narrowness of even the broad equity markets. In fact, in the last two years, more than 82% of the gains in BSE Sensitive Index (India's barometer for equity markets) can be explained by a mere seven stocks. The results are no different with even NSE Nifty Index. While the foreign institutional investors own investment norms make the funds get concentrated to a few but the problem gets aggravated due to the role being played by the institutional intermediaries (especially the stock exchanges by promoting F&O), government, analysts, and investment bankers in the same and the wide spread inter-linkage among them. This paper explores the above issues and other links which are increasing the shallowness of the Indian equity markets. The above issues do aggravate the chances of systemic errors and failures leading to one side movements in the market.
Keywords: equity markets, India, financial markets, global funds, Index, stock exchange, international
JEL Classification: G15, G10, G18, G24, N25
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