Big October crash: Try the cockroach portfolio
Mumbai: Even a dead cat will bounce once if it falls far enough," goes a famous Wall Street saying. In the 1980s, the saying gained currency and came to mean a short-term recovery amid a declining trend. As the Indian stock markets closed over 1% on Friday, 27 October, after six days of bloodbath, many analysts found themselves questioning if this was indeed one of those ‘dead cat bounces’.
The Indian markets have been steady for most of the current year but were jolted last week from the uncertainty around the ongoing Israel-Hamas war, which now threatens to involve other state actors in the Middle East. Also, the hardening of US 10-year bond yields, which had crossed the 5%-mark for the first time in 16 years, played on the minds of many investors. High bond yields indicate a risk-off environment as global asset managers typically rotate portfolios from equity to debt to capitalize on the higher bond yields.
So far in October, foreign portfolio investors (FPIs) have net sold ₹20,356 crore worth of Indian equities. Even though domestic institutional investors (DIIs)— insurers, pension funds, mutual funds—have bought shares worth ₹26,585 crore, the benchmark indices, S&P BSE Sensex and CNX Nifty 50, still ended in red in six of the last seven trading sessions, correcting around 4% over this period. About ₹13 trillion of investor wealth got eroded over the course of these trading sessions.
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