Sensex hits record high: Time to forget these five party poopers

These are the times when you should be happy. The Sensex touched an all-time high after five years and 10 months. The Nifty is also inching towards that level.

If you feel there is something terribly missing, remember the proverbial three wise monkeys: see no evil; hear no evil; say no evil. After all, who would want to play the party pooper at such a time?

So here are five things you should not even think about now:

1. P-Notes: Participatory notes (P-Notes) are the instruments through which overseas high networth individuals, hedge funds and other foreign institutions invest in Indian equities. They route these investments through foreign institutional investors (FIIs) registered with Sebi. According to a recent PTI report, cumulative investment through P-Notes hit a 10-month high of Rs 1.71 lakh crore in September. Apart from this, there is investment in P-notes which have derivatives as underlying. This stood at Rs 1.06 lakh crore. There was a time when investors generally looked at these instruments suspiciously. They had a feeling that this money that came into the Indian market through such institutions was actually the unaccounted wealth of our politicians and other influential persons. But then Sebi tightened norms on these investments. After the clamp down, the proportion of P-notes in FII portfolio declined sharply. Now they account for about 13 percent of FII investments. It was about 50 percent in 2007, when the indices surged 1000 points on a daily basis. No, things have changed now. Investments through P-notes may be surging but they are better regulated. They are not as bad. Why kill the happiness? Let us not mention it.

2. Valuations: Valuations of some of the stocks are rising. Just some. That is because the FIIs, who are driving the upmove, are not interested in all the stocks. As this blog by R. VenkataramanIndia, Infoline Group Managing Director says :

* To an FII, it feels that Sensex is up to 41,735 pts. (index adjusted only for the top 15 stocks with highest FII holding)

* To non-FIIs, it feels that Sensex is down to 16,780 (index adjusted only for the top 15 stocks with least FII holding)

* To a retail investor it feels like Sensex is down to 9044 points. = down 56% in 5 years. (Sensex rebased with the performance of the BSE Small cap index)

* To a retail investor it feels like Sensex is down to 12728 points. = down 39% in 5 years. (Sensex rebased with the performance of the BSE MID cap index).

In short, the Sensex levels are different for different people. But do not bother as long as it is at that elevated level.

3. US tapering: The US Federal Reserve will some time this year decide when to start reducing its monthly bond buying. It now buys $85 billion worth papers to provide liquidity there. But once the central bank sees the US economy is improving it would cut down its stimulus. This will be a trigger for the FIIs to pull out of all emerging markets and invest in the US. So there will be an outflow. Macquarie’s Viktor Shvets today told CNBC-TV18 that the rupee will go back to the 68-69 levels. But our government and the RBI have assured us that we are prepared. So, don’t worry be happy.

4. Fundamentals: Inflation indices-both retail and wholesale-are soaring. Whatever you read from these indices, the ground reality is more striking. Despite being the Diwali season, everybody is sitting tight. The middle class doesn’t want to spend as they are not sure whether they would be able to have their jobs towards the year-end. According to ZyFin, a research firm, consumer spend is at all-time low this Diwali. The discord in the market is evident. Despite the FII pumping in money into the equities, the rupee closed weaker. Bonds too. “Smiles all around as Sensex and Nifty at striking distance of all-time high despite low growth, high inflation, concerns over twin-deficit, tweeted Moses Harding, group CEO– Liability and Treasury Management, SREI Group. Keep smiling.

5. Investing: This one is for retail investors. Do not even think of investing, unless and until you can deftly time the exit. It is their rally. Not ours.