The smart money is dumb money
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In this edition of Contramoney, let me state the obvious, re-label the “smart money", and then, perhaps, challenge the dumb money’s intellect (you and me are in this bucket). Now, let’s start with the obvious. Foreign investors have been selling Indian stocks like there is no tomorrow.
This is not a recent trend; it goes back many months. Now, why are they selling? To begin with, it was said to be the pricey valuations of Indian stocks. Then came the rationale of money moving back to the US as interest rates headed lower, making stocks more attractive there.
And the latest now is that the recent “turnaround" in sentiment towards China is pulling away some money from India. All these points are very valid. That’s if you are a punter looking to flip opportunities as fast as they come.
None of these, hilariously, is in sync with all the peans such punters sing about the long-term attractiveness of India. The other side of this punt is the Indian mutual fund. They could otherwise collectively be called the India perma-bull fund.
Why? Well, no matter what, they keep buying stocks in a market that gets pricier by the day. Why? They have sold the India story so well, that they cannot stop the flow of money into their funds. And now since the money is pouring in, they need to keep investing it.
FIIs are exiting India for non-fundamental reasons. Mutual funds are buying India for non-fundamental reasons. And we treat them as smart money and track their every move as if it were a path paved with gold.
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