Bourses await new trading system

By Oommen A. Ninan

Stock market participants including retail investors are enthusiastically waiting for the introduction of the new trading system on bourses from Monday. However, most of the investors may adopt a wait-and-watch policy before embarking on any large commitments.

``We don't see much volume now but I think people will get comfortable with the new system soon'', said Mr. Rajat Jain, Chief Investment Officer, IDBI Principal Asset Management Company. We will see an improvement in volumes over the next two to three months,'' he said.

``The market as a whole is cheap and by and large there would be no sectors which will outperform the broad market. A whole range of sectors are priced attractively and this would result in no one sector performing spectacularly against the Index,'' Mr. Jain said, adding ``though there was a volume build up in B1 and B2 shares there was no underlying buying in these stocks from fund managers and as a whole the large cap stock should do better than the small cap scrips for the next one year.''

The benchmark Bombay Stock Exchange (BSE) 30-Share Sensitive Index moved up by 75.02 points or 2.2 per cent to 3456.78 from 3381.76 in the previous week. On the National Stock Exchange (NSE) S&P CNX Nifty index also up by 23 points to 1111.15 from 1088.15. The major gainers were Zee Telefilms, Infosys, Reliance Industries, NIIT, Dr. Reddy's Labs and L&T. The major losers on the Sensex were Mahindra & Mahindra and Glaxo. The foreign institutional Investors (FIIs) continued to be aggressive buyers with purchases worth Rs. 263 crores.

According to Mr. Sunil Shah, a leading BES broker, the volumes are likely to be low in the first few days of the current week. Though small quantities of good stocks can be bought during the week if the opportunity arises, it would be better to wait until the market stabilises. ``At the same time it would be worthwhile holding the stocks which investors currently own and not get out in panic as valuations are attractive at the current levels and selling the stock would mean losing delivery of good stocks at cheap prices,'' Mr. Shah added.

Meanwhile hopes of a U.S. economic recovery should ensure interest in the new economy stocks. Mr. Shah felt that the old economy stocks are beginning to look attractive purely on the valuation front. This should ensure that the fall due to purely technical factors like introduction of rolling settlements would get arrested as medium to long term investors step in to buy these stocks. With the beginning of new trading system, markets are expecting an influx of a large number of medium and long term investors.

Markets bade farewell to the indigenously developed carry- forward (Badla) system, which was grossly misused by the brokers as well as sub-brokers driving out retail investors from bourses. Monday will mark a new beginning for the Indian stock exchanges and the introduction of rolling settlements in 246 additional scrips. All these scrips are among the most liquid stocks on the bourses. This will mean compulsory delivery in case the position is not squared off by the end of the day. There are options to be introduced in 31 stocks. The ban on short selling is also being removed starting Monday. A new investor-friendly era is beginning from Monday.

It would be interesting to watch as to how the Indian markets will grapple with this new system. The volumes are likely to be low in the initial stages till the investors as well as intermediaries come to terms with the new systems.

The future and options market are also likely to pick up as the speculative element in the markets move towards that segment, leaving the cash segment for genuine investors. The events of the last week indicate that the markets have taken to change optimistically. The volumes on last trading day of the old system was at around Rs. 1,100 crores.

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