SHANKAR SHARMA'S VIEWS.....

The world can't have a bull run in commodities: Shankar Sharma Vivek Kaul & Sachin Mampatta / DNAThursday, February 4, 2010 3:00 IST

The big bear hates commodity bull runs because, unlike other asset classes, it impoverishes people. So they don’t last. And he continues to be bearish. The Sensex, he says, is just a two square mile phenomenon — Fort to Nariman Point. The market going up benefits 25 brokers, 200 promoters and 100 funds. Iske aage kisko fayeda ho raha hai, boss? he asks. Meet Shankar Sharma, director and chief global strategist, First Global Stock Broking. In this freewheeling interview, he spoke to DNA Money of how China is 200 years ahead of India, how India doesn’t deserve to be a Bric nation, on how the market is all about insider trading:

How do you see 2010 panning out?
Back in December 2008, my view was that in 2009 could not by any logical measure be a down-year considering that we had already lost 60% in 2008, which was unprecedented. That panned out but within that, my view always was that it was a bear-market rally and not the emergence of a new bull market and I’ll still pretty much maintain that view till I find evidence to the contrary.
But what about 2010?
My view has been that we will see a market in the first half which will be quite ugly. The first half would be a down-half and the second would be an up-half but by and large, for the year, we may not see much of a huge swing as opposed to 2007, 2008 and 2009, which have been very huge by way of volatility. I doubt if this year will be as violent as the years past because volatility cannot continue with the same intensity perennially.
What about the impact of FII flows?
I don’t believe that money flows have anything to do with the market. So I don’t subscribe to that theory that flows determine where the markets go. The rationalist in me, the mathematician in me, tells me only one thing — that dollar in is always equal to dollar out. There can never be new money coming into the market, it is arithmetically impossible.
So we chose to focus on the side of the equation that supports the market move. If the markets rally and the FIIs bought stocks worth a thousand crores, we kind of work in reverse and say that because they bought the market went up.
I say what about the guys who sold a thousand crores? For FIIs to have bought a thousand crores, somebody sold a thousand crores.
So how come we are not focusing on that side of the equation?
Because that’s not comfortable. We like to see easy patterns in things, that’s the way the human mind is. Sometimes patterns are easy and they sort of lull us into … Five days on which the FIIs bought, the markets went up so we kind of assume that that is the pattern. If you drill down, there is no pattern at all. The mind wants to seek a pattern in things that show no patterns at all. That’s the way the human mind works. We like easy theories, we like things we can tell our children. And I always say that if this was that simple, then my daughter, who is five, can be an analyst. If all that matters is that money came in, markets went up, and money went out, markets went down, then why do we need people who are educated. Then why do we need people who are educated for a pretty childish thing to analyse? Anybody can analyse it.
No flows can determine where the market is going. It’s irrelevant. The market does not know the identity of the buyer or the seller. A dollar in is equal to a dollar out. And a dollar in, irrespective of where it comes from, has the same monetary effect on the market. I can’t say that just because a foreigner is buying stock, I have to attach $1.5 of value to a $1 investment. That’s all bullshit. That’s all nice talk that people begin to talk, you know, over three drinks…
Ultimately there is no rational basis for saying these things. But in life there are a lot of things which we kind of just believe, that’s the way it is. Rationalists always debunk these theories. I belong to that camp. I believe in a lot of nonsense also but I don’t believe this nonsense.
What is the rationalist’s view of the markets?
My views are determined by 60% technical analysis and 40% by fundamentals. Money flows don’t matter, because arithmetically money flows cannot matter. Dollar in is always equal to dollar out.
I’ll tell you where it matters. It matters in a thinly traded stock. That’s where it matters, because that guy is the market. That one guy, two guys, that cartel of people they can manipulate and take up the price of a single stock, a Z-group stock. And that happens. Even as we speak, there is some stock being manipulated, that’s possible. But I am not talking about a stock, I am talking aggregate, macro, a big market. A large, liquid well-traded market. And by category emerging markets, by category global equity markets, its not possible yaar. ...............AND MUCH MORE..........

I pay much attention towards my Ph.D., hopefully on market sensitivity, econmic liberalisation and market capitalisation. So I try to publish atleast twice in a week. I hope my ardent followers appreciate.