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Capturing Sentiment

Now, India too gets an Investment Confidence Index

JP Morgan Asset Management (JPM) has captured, for the first time in India, the current attitude of investors in an index form.

JPM and ValueNotes, an independent market research company, launched the first ever Investment Confidence Index (ICI) for India in August 2009, thereby giving us an index to capture the mood of the economy and the investment environment. 

To be released every quarter, the results of the first survey were made public on August 12, 2009. All the 1,711 respondents were asked six key, or ‘index’ questions which were then used to arrive at a reading. 

Overall, the sentiment seemed to be quite positive. The ICI stood at 135.9 on a scale ranging from 0 (most negative outlook) to 200 (extremely positive). But when one dug deeper, the results were even more intriguing.

On sentiment levels of retail investors and advisors

•    Retail confidence was highest in Chennai (160.2) and lowest in Hyderabad (98.1).
•    The younger were much more confident, the older, a little more sceptical. The age group 22 to 25 were most confident (142.7), while those aged 55 to 60 were the least (131.3).
•    If one looked at occupational status, the salaried employees from the private sector topped the list (140.8).
•    Investors and advisors expect the Sensex to reach 16,000-17,000 levels by December 2009.

On corporate expectations
•    Half the corporates surveyed believe that the rupee is likely to appreciate in the next six months.
•    76 per cent expect interest rates to move upwards.
•    36 per cent expect the RBI to intervene in the medium term to reduce liquidity in 6-12 months.
•    44 per cent believe that non-performing assets (NPAs) can be expected to increase.
•    70 per cent expect an improvement in profits and employment opportunities.

On investment patterns
The richer individuals get, the more they prefer stocks and mutual funds. Over the past year, 37 per cent of retail investors with wallet size between Rs 2-5 lakh invested in stocks and funds. The figure rose to 79 per cent when the wallet size increased to Rs 50 lakh onwards.

•    82 per cent of corporate respondents invested in debt funds over the past year with money market funds being the most popular.
•    Those between 22 and 35 years of age preferred investments in stocks and mutual funds. But the 35-55 age group preferred insurance and retirement products.

Though there is nothing scientific about sentiment, which is basically a mood indicator, there is no denying that it has a large role to play in the stock market. Till date, there has not been any formal tracking system in India to capture such a trend. JPM is no novice in this area and launched its first such index in the U.K. in the 1990s, followed by Germany, France and other European countries. In Asia, it has done so in Hong Kong, Japan and Taiwan. India is the latest addition to this list, where it teamed up with ValueNotes to bring out this index.