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Big round numbers mean business for brokers

Big round numbers mean business for brokers
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First Published: Mon, Jul 09 2007. 12 04 AM IST
Updated: Mon, Jul 09 2007. 12 04 AM IST
Where one group sees a bust waiting to happen, another sees a boom in the making. Thus, even as experts advise caution, brokers wait for phone calls from existing clients and new ones wanting to put money into a stock market where a key index, the Bombay Stock Exchange’s (BSE) Sensex broke through the 15,000 barrier on Friday.
They may dismiss the number as irrelevant, but experts admit that it, and other numbers of its kind, big, round, and easy to remember are huge advertisements for the stock market in a country where there are around five million retail investors. “Usually, when people read about the Sensex touching a big number they feel bad about the opportunity they lost,” says Kartik Jhaveri, a Mumbai-based financial planner. “If they know a friend who made money in the rally they feel they could also have done so and look for ways to get in now,” he adds.
Everyone wants a piece of the action. There are several initial public offerings waiting to tap the feeding frenzy among retail investors. And mutual fund houses are lining up new fund offers.
Investors can’t help themselves, says Shrirang Joshi, a psychiatrist and technical analyst. Round numbers are easily accepted by people because our brains use them as shortcuts in calculations. For people who do not have the means to micro-analyze trends they become easy instruments to evaluate progress. It could be “the Sensex crossing 15,000 or the rupee breaking the 40 (Rs40 to the dollar) mark—certain figures will be seen as milestones in a trend,” adds Joshi. A milestone it is, claims Jeetendra Martak, a Mumbai-based stock broker who bas been trading in stocks since 1972. “This is a feather in our cap,” he says. “It is because our markets have started touching such highs that international economists and international media have started noticing us (India),” he adds.
Over the past four years, the Sensex, an index of 30 stocks, has regularly crossed big, round numbers as it has risen from 3000 to 15,000. “All of these have purely psychological importance. It is like making a century in cricket. As much effort goes in to making 99 runs as into 100. But it is 100 runs we celebrate,” says Sandeep Wagle, chief technical analyst at Angel Broking, a Mumbai-based brokerage.
The problem, say experts, is that such numbers are usually a reflection of what came before, not what comes after. Peaks, they add, are usually followed by corrections when retail investors burn their fingers. “Retail investors often come into the market when everything is going up and when the market corrects they end up with shares that are not worth the paper they are on,” says Hitesh Kuvelkar, associate director of research at First Global, a brokerage.
When the Sensex touched 6,000, some BSE members released balloons and when it touched 7,000, a member of the stock market regulator, the Securities and Exchange Board of India, predicted that it would touch 16,000 within six months. All of this misleads small investors, says Kirit Somaiya, who is the president of the Mumbai-headquartered Investors Grievance Forum, an investor protection organization. “This obsession with round figures is not healthy,” adds Somaiya. “Retail investors look at the moment when the market touches a big number but they should look ahead at the next three-five years and whether the market will stay that way,” he says.
Sachin Chavan, a Mumbai-based technical analyst, says that while he bases his future market predictions on historical prices and charts, round numbers have no significance for him. “15,000 means nothing to me,” he adds.
Psychiatrist and technical analyst Joshi, who knows a bit about both worlds, says as much in a book he has co-authored, which will be released soon. It’s called Time Your Trades with Technical Analysis.
Jeetha D’Silva contributed to this story.
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First Published: Mon, Jul 09 2007. 12 04 AM IST