For representative purposes.
| Photo Credit: Getty Images

Contrary to popular wisdom, financial markets today are not as efficient as they used to be just a few decades ago, argues billionaire investor and co-founder of AQR Capital Management Clifford S. Asness in his forthcoming paper “The Less-Efficient Market Hypothesis” in the Journal of Portfolio Management.

Market efficiency refers to how well the market price of assets, such as common stocks for example, reflect the information that is available to investors about these assets. Financial experts believe that markets, while not perfectly efficient, are highly efficient since there are millions of investors in the market trying on a daily basis to gather as much information as possible about assets and take advantage of any inefficiencies in the pricing of these assets. So, for example, if a company’s stock is trading at a really cheap price when compared to its likely future cash flow, this would attract investors who are looking for a good bargain, thus ensuring that the price of the stock is quickly bid up in the process and the market becomes efficient.

In the modern world, where information about assets is more easily available than ever before and can spread quickly among investors, we might expect assets to be priced efficiently. In fact, some have argued that with the advent of technology, assets have become priced so efficiently that traditional investing approaches such as value investing, which relies on purchasing assets that are selling below their fair value or priced inefficiently, have become irrelevant in today’s market. But Asness argues that the “value spread,” or the gap between the valuation of expensive large-cap stocks in the market as against the cheap large-cap stocks regardless of what measure is used to value these stocks, has actually risen significantly compared to just a few decades ago. In other words, investors are paying too much for stocks that they fancy while deserting stocks that they don’t like so much, causing the extreme overvaluation of some stocks and the undervaluation of other stocks.

The impact of social media

When certain stocks are overvalued while others are undervalued, one might expect investors to avoid overvalued stocks and purchase undervalued stocks, thus helping correct pricing inefficiencies. But Asness notes that this is not happening so much anymore in markets, and that discrepancies in the pricing of expensive and cheap stocks have lasted longer than in the earlier decades. He attributes various reasons for this, but considers the rise of social media and the ease with which stocks can be bought or sold these days as the most important reason. The rise of social media has meant that investors are more likely to gang up and hold similar opinions about stocks that they bet on, he argues, causing the overvaluation of these stocks and the undervaluation of others. On the other hand, there are very few investors who are willing to make a contrarian bet on undervalued stocks, thus depressing the prices of these assets. Asness believes the rise of passive index investing might be aggravating the problem as it leads to investors piling big into a few stocks which possess momentum.

Why does market efficiency matter? It matters because the proper pricing of assets is crucial to how capital is allocated towards competing ends in society, which in turn determines how efficiently resources are used. For example, when assets are priced efficiently companies with bright future prospects get more capital from investors than other companies. When assets are not priced properly this can lead to capital being misallocated to companies that don’t really deserve it, leading to the inefficient use of scarce resources.

The announcement of a hike in securities transaction tax and short term capital gains tax in the Budget for 2024-25, impacted markets’ sentiment negatively during the initial trade on July 25, 2024.

Equity market benchmark indices Sensex and Nifty tumbled in early trade on July 25, continuing to decline for the fifth day running, dragged by Axis Bank and overall bearish global market trends.

The announcement of a hike in securities transaction tax and short term capital gains tax in the Budget for 2024-25, heavy foreign fund outflows and profit-taking after a record rally also impacted markets’ sentiment negatively during the initial trade.

Also Read: Markets still sour after tax hike on equity investments, Nifty, Sensex fall marginally

The 30-share BSE Sensex tanked 671 points to 79,477.83. The NSE Nifty tumbled 202.7 points to 24,210.80.

From the Sensex pack, Axis Bank declined nearly 6% after the company’s June quarter earnings failed to cheer investors.

JSW Steel, Tata Steel, ICICI Bank, Power Grid, UltraTech Cement and Titan were the other laggards.

Tata Motors, Larsen & Toubro, HDFC Bank and Kotak Mahindra Bank were the gainers.

In Asian markets, Seoul, Tokyo, Shanghai and Hong Kong were trading lower. The U.S. markets ended significantly lower on July 24.

“Global cues have turned distinctly negative with a sharp 3.64% cut in Nasdaq, which is the worst cut in 2024. The tech stocks which have been driving the rally in the U.S. are facing the brunt of selling due to worse-than-expected results and news.

“In India, too, the sentiments have turned a bit negative on the Budget proposals to raise the capital gains tax,” said V. K. Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Foreign Institutional Investors (FIIs) offloaded equities worth ₹ 5,130.90 crore on July 25, according to exchange data.

Global oil benchmark Brent crude declined 0.76 % to USD 81.09 a barrel.

The BSE benchmark declined 280.16 points or 0.35 % to settle at 80,148.88 on July 24. The NSE Nifty dropped 65.55 points or 0.27 % to 24,413.50.

People walk past a display screen telecasting the Union Budget 2024-25 presentation by Union Finance Minister Nirmala Sitharaman at the Parliament House, outside the BSE in Mumbai on July 23, 2024.
| Photo Credit: ANI

Indian benchmarks were little changed on July 24, with sentiment still sour a day after the government raised the tax on gains from equity investments.

The NSE Nifty 50 fell 0.09% to 24,456.6 as of 9:33 a.m. IST, while the S&P BSE Sensex shed 0.09% to 80,355.57. The broader, more domestically focussed small- and mid-caps were little changed.

“The Union Budget has presented short-term challenges for the markets,” said Pranav Haridasan, managing director and chief executive at Axis Securities. “The rise in capital gains tax rates and the increased tax on derivatives trading are a short-term negative.”

The blue-chips slipped 1.6% on July 23 after the government hiked the tax rate on equity derivatives trades and on profit from equity investments. A jump in consumer stocks helped the indexes recover to end with relatively lower losses. Eight of the 13 major sectors logged losses on the day.

Among individual stocks, cigarette maker ITC gained 3%, adding to their 5.5% jump on July 23 after the government did not raise tobacco taxes. Jeweller Titan rose 2%, adding to its 6.5% jump on the day after the government chopped the customs duty on gold and silver to 6% from 15%.

“We believe the reduction in customs duty is positive for consumer demand. Titan remains the clear market leader and a reduction in customs duty should be a positive catalyst,” said Aditya Soman and Vatsal Dujari, analysts at CLSA.

ITC and Titan were the top Nifty 50 gainers.

Hindustan Unilever lost 2.5% after the consumer good maker’s first-quarter results showed a “slight pick-up, but still a long road ahead”, according to Ambit Capital. Analysts also flagged the stock’s high valuation.

Image used for representative purpose only
| Photo Credit: Reuters

With majority of exit polls predicting a third term for Narendra Modi in the general elections, a state of exuberance gripped the Indian stock markets on Monday, and the key benchmark indices, the S&P BSE Sensex and NSE Nifty-50, surged over 3.3% to their all-time high. 

The Sensex gained 2,507.47 points or 3.39% to 76,468.78, its all-time closing high. During intraday trade, the index had touched its all-time mark of 76,738.89.

PSU and banking stocks led the gains at BSE. NTPC was up 9.21%, followed by State Bank (9.12%), Power Grid (8.97%), L&T (6.27%), Axis Bank (5.68%) and Reliance (5.65%).

The Nifty-50 index too surged 733.20 points or 3.25% to 23,263.90, its all-time closing high, led by Adani Ports, which gained 10.62%.

Also Read | SBI Share Price: State Bank of India’s market cap crosses ₹8 lakh crore, stocks surge to all-time high

The euphoria was about continuity of the present government at the Centre led by Mr. Modi as predicted by over half a dozen exit polls. 

“The optimism over exit polls pushed the market to a new high. Major sectors rose, and small and mid-cap stocks also saw significant gains. Reliance closed at a new high,” said Vikram Kasat, head, advisory, Prabhudas Lilladher, a brokerage firm. 

He said buying was witnessed across Adani counters, with Adani Ports and Adani Power as the biggest gainers.

“The bulls maintained their grip on Dalal Street, with the Sensex and Nifty opening at record highs. Following the general election exit poll, the market saw broad-based buying, with the expectation that the BJP will return to power,” said Neeraj Sharma, AVP, Technical & Derivatives Research at Asit C Mehta Investment Intermediates Ltd. 

Monday’s show was mostly led by retail investors and domestic institutions, while Foreign Portfolio Investors (FPIs) preferred to wait for the actual outcome on Tuesday.

According to Pratik Gupta, CEO & Co-Head, Kotak Institutional Equities, some investors, “especially the Foreign Portfolio Investors [FPIs], are still waiting for the final results before they act.”

“If the actual election result is in line with the exit poll predictions, there is set to be further upside in the short term,” Mr. Gupta added.

“All sectoral indices closed in the green, with capital goods, PSU banks, oil and gas, power, and real estate up 5-7%,” he added.

However, some analysts have cautioned about the likely volatility on Tuesday when the actual outcome would be announced.  

“As we await the official election results, significant volatility is expected,” said Ajit Mishra, senior vice-president, Research, Religare Broking Ltd.  

Rupak De, senior technical analyst, LKP Securities, said, “The sentiment remains highly dependent on the election results tomorrow [Tuesday]. If the election results align with the exit poll or fall below the exit poll numbers, it might attract mild to heavy selling pressure in the overall market.” 

“However, if the results are better than expected — meaning if the NDA secures significantly more seats than the average exit poll numbers — then the Nifty might embrace another round of buoyant movement,” he added.

The rupee paused its three-day slide and inched up 2 paise to 83.23 against the U.S. dollar
| Photo Credit: SUDERSHAN V

The rupee paused its three-day slide and inched up 2 paise to 83.23 against the U.S. dollar in early trade on Friday amid positive cues from the domestic equity markets and a weak American currency overseas.

An upward trend in the crude oil prices and selling pressure from foreign equity investors continued to weigh on the Indian currency, forex traders said.

At the interbank foreign exchange market, the local unit opened at 83.24 and gained further to reach 83.23 against the greenback, up 2 paise from its previous close.

The rupee settled 8 paise lower at 83.25 against the dollar on Thursday, the third consecutive day of fall. It had dropped 4 paise on Monday, followed by a dip of 1 paisa on Wednesday when it closed at 83.17 against the dollar. Forex markets were closed on Tuesday on account of Dussehra.

According to analysts, the dollar retreated as the U.S. Treasury yields dropped from its record levels after the U.S. GDP data, durable goods sales orders as well as home sales numbers exceeded the estimated growth.

Besides, the European Central Bank’s decision to leave the benchmark interest rate unchanged also came on expected lines, they said.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.03 per cent lower at 106.57 on Friday.

Global oil price benchmark Brent crude witnessed a sharp rise of 1.27 per cent to $89.05 per barrel.

On the domestic equity market front, the Sensex climbed 272.63 points or 0.43 per cent to 63,420.78 while the broader Nifty rose 88.20 points or 0.47 per cent to 18,945.45.

Foreign Institutional Investors sold equities worth ₹7,702.53 crore on Thursday, according to exchange data.

The rupee stayed on downward track for the third consecutive session and depreciated by 6 paise to 83.23 against the U.S. dollar
| Photo Credit: SUDERSHAN V

The rupee stayed on downward track for the third consecutive session and depreciated by 6 paise to 83.23 against the U.S. dollar in early trade on Thursday, tracking a firm American currency and negative equity market sentiment.

Forex traders said the Indian currency was also pressured due to massive selling of equities by foreign investors even as the crude oil prices hovered close to $90 a barrel amid geopolitical tensions in the Middle East.

At the interbank foreign exchange market, the local unit opened weak at 83.19 and then touched the lowest level of 83.23 against the greenback, registering a loss of 6 paise from its previous close.

This is the third day of fall in the rupee. It dropped 4 paise on Monday, followed by a dip of 1 paisa on Wednesday. Forex markets were closed on Tuesday on account of Dussehra. On Wednesday, the rupee closed at 83.17 against the U.S. dollar.

Analysts attributed the strengthening dollar to a record rise in the U.S. Treasury yields after positive data on home sales in the U.S. on Wednesday.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.20 per cent higher at 106.75 on Thursday.

Global oil price benchmark Brent crude declined 0.31 per cent to $89.85 per barrel.

On the domestic equity market front, the Sensex plunged 478.55 points or 0.75 per cent to 63,570.51 while broader Nifty tanked 152.15 points or 0.80 per cent to 18,970.

Foreign Institutional Investors sold equities worth ₹4,236.60 crore on Wednesday, according to exchange data.

The rupee appreciated by 5 paise to 83.11 against the U.S. dollar in early trade. File
| Photo Credit: V. SUDERSHAN

The rupee appreciated by 5 paise to 83.11 against the U.S. dollar in early trade on Wednesday, tracking a weak America currency and softening crude oil prices in the overseas market.

Some buying by foreign equity investors supported the Indian currency even though it was pressured by a subdued sentiment in the domestic equity markets, forex traders said.

At the interbank foreign exchange market, the local unit opened stronger by 8 paise at 83.08 and then touched the lowest level of 83.11 against the greenback, registering a gain of 5 paise from its previous close.

On Monday, the rupee closed 4 paise lower at 83.16 against the U.S. dollar. Forex markets were closed on Tuesday on account of Dussehra.

Gaurang Somaiya, Forex and bullion analyst, Motilal Oswal Financial Services, said that the dollar fell against its major crosses after U.S. yields retracted from its record level.

He said the USD-INR (Spot) is expected to “trade sideways with a negative bias and quote in the range of 82.80 and 83.20”.

“Market participants will now be keeping an eye on the US GDP data that is due tomorrow and could trigger more wild swings in bond yields and currency markets. Euro and pound fell in yesterday’s session after preliminary manufacturing data came in below estimates,” Mr. Somaiya added.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.09 per cent lower at 106.18.

Global oil price benchmark Brent crude inched up 0.05 per cent to $88.11 per barrel.

On the domestic equity market front, Sensex fell 48.16 points or 0.06 per cent to 64,530.02 points while broader Nifty was down 11.20 points or 0.06 per cent at 19,270.55 points.

Foreign Institutional Investors bought equities worth market ₹252.25 crore on Monday, according to exchange data.

A general view of the Bombay Stock Exchange.
| Photo Credit: Reuters

Equity benchmark indices fell in early trade on Friday due to weak trends in global markets and soaring crude oil prices.

Foreign fund outflows also weighed on investor sentiments.

Falling for the third day running, the 30-share BSE Sensex fell 320.63 points to 65,308.61. The Nifty declined 106 points to 19,518.70.

Among the Sensex firms, Hindustan Unilever traded over 1 per cent lower after the company reported a marginal decline in consolidated net profit to ₹2,657 crore for the second quarter ended September 30 amid subdued rural demand and heightened competitive intensity.

HCL Technologies, ITC, Power Grid, Bajaj Finance, UltraTech Cement and Asian Paints were among the other major laggards.

Nestle, Tata Motors, Kotak Mahindra Bank and IndusInd Bank were among the gainers.

In Asian markets, Seoul, Tokyo, Shanghai and Hong Kong were trading in the negative territory.

The US markets ended lower on Thursday.

Global oil benchmark Brent crude jumped 0.90 per cent to $93.21 a barrel.

Foreign Institutional Investors (FIIs) offloaded equities worth ₹1,093.47 crore on Thursday, according to exchange data.

“The U.S. 10-year yield hovering around 5 per cent continues to be a headwind for equity markets. The volatile situation in West Asia, though being largely ignored by the market now, can pose additional near-term challenges,” said V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

The BSE benchmark fell 247.78 points or 0.38 per cent to settle at 65,629.24 on Thursday. The Nifty declined 46.40 points or 0.24 per cent to 19,624.70.

Image used for representative purpose only.
| Photo Credit: REUTERS

Domestic equities started on a negative note on Friday, with benchmark Sensex tumbling 341 points as negative global cues and concerns over the quarterly financial performance of IT companies hit investor sentiments.

The broader Nifty too declined in early trade while Asian markets fell amid fears of higher interest rates against the backdrop of a marginal rise in the latest U.S. inflation numbers.

Falling more than 341 points or 0.51%, the 30-share BSE Sensex was at 66,067.31 points. A total of 20 companies in the index, including Infosys and Axis Bank, dropped more than 2%

The scrip of Infosys, whose September quarter results did not meet Street expectations, was trading at ₹1,426.80 apiece..

Meanwhile, ten Sensex companies were in the green.

The 50-share NSE Nifty dropped 84.25 points or 0.43% to 19,709.75 points, with as many as 27 index constituents trading in the negative territory.

Key Asian indices were in the red and Hong Kong’s Hang Seng Index dropped more than 2%.

U.S. and European markets closed in the negative territory on Thursday amid inflation numbers coming in slightly higher than expected in the U.S. Sensex and Nifty too had declined.

“Expect gap down opening in the domestic markets after Infosys announced lower than expected FY24 earning guidance and September inflation in the U.S. was marginally above estimates,” Vikas Jain, Senior Analyst at Reliance Securities, said in a pre-market open note.

Rising U.S. 10-year bond yield as well as fall in Asian markets impacted the domestic equities, he added.

Foreign Institutional Investors (FIIs) were net sellers on Thursday as they sold shares worth ₹1,862.57 crore, according to data available with BSE.

The Bombay Stock Exchange.
| Photo Credit: NIHARIKA KULKARNI

Benchmark BSE Sensex declined in a volatile trade on Thursday, reversing the two-day rally, largely due to selling in IT stocks.

The 30-share BSE Sensex declined 64.66 points or 0.10 per cent to close at 66,408.39 points, with 14 of its constituents settling lower and 16 advancing. The index opened higher and touched a high of 66,577.60 points in early trade but later fell to a low of 66,342.53 points.

The broader Nifty of NSE also declined 17.35 points or 0.09 per cent to close below the 19,800-level at 19,794 points. It moved in a range of 19,772.65 points to 19,843.30 points during the day’s trading.

Analysts said selling in IT shares following mixed results by IT behemoth TCS dragged the key indices from the day’s high levels.

Shares of TCS, the country’s largest software exporter, dropped 1.89 per cent, a day after it reported mixed quarterly results for the July-September quarter.

It posted an 8.7 per cent year-on-year increase in its September quarter net profit and an 8 per cent rise in revenue over the year-ago period but the growth was muted on a sequential basis.

Brokerages stated its operating performance was a mixed bag.

Infosys was the biggest loser among the Sensex stocks, falling 2.29 per cent ahead of its financial results to be announced after market hours. HCL Technologies also dropped 1.75 per cent ahead of its results.

Profit taking in Bajaj Finance, Nestle, Kotak Bank, SBI, Bharti Airtel L&T and Asian Paints also weighed on the benchmark index.

Maruti bucked the trend by gaining 1.73 per cent after strong retails sales in September. Power Grid, M&M. JSW Steel and Tata Steel also advanced.

Asian markets, including Japan, China and Hong Kong gained.

Hong Kong’s Hang Seng index closed 1.9 per cent higher, Japan’s Nikkei 225 gained 1.8 per cent and South Korea’s Kospi was up 1.2 per cent. China’s key Shanghai Composite rose 0.9 per cent.

Stock markets in France, Germany and the U.K. were also up ahead of the release of U.S. inflation data.

On the domestic front, Sensex had jumped 393.69 points or 0.6 per cent to close at 66,473.05 points while Nifty climbed 121.50 points or 0.62 per cent to settle at 19,811.35 points on Wednesday.

Foreign Institutional Investors (FIIs) continued to be net sellers as they offloaded shares worth ₹421.77 crore on Wednesday, according to data available with BSE.