Why has the Sensex gone up in the past one month? Why has Reliance and Bharti gone up in the past one month?

Welcome to Economics Class 101.

Simply because there has been more demand for the share than there was supply available at a lower price. The buyer was willing to pay a higher price till he got the delivery.

Sounds simple? well, not so. Not so to too many people who live by claiming that they can predict market movements!

Over the past few weeks lots of money has been coming into India for investing. When the money comes in, it seeks assets to buy – remember they are as much in a hurry to buy equities – especially if they know that further money is coming in.

What do they buy initially? The most liquid scrips – with minimum Impact costs. So many of the the investors would go and buy the most liquid asset – Reliance, Bharti, SBI (Sbi has some limitations, so not really a favorite), Hdfc, Hdfc bank,……….so the prices of these shares go up and go up fast. Similarly when they need to exit these shares could see a drop.

Such shares are called “liquidity seekers” and “liquidity providers”…so do not try to ask yourself a question like ‘what has changed in the fundamentals of Reliance / Bharti Airtel that its share price has gone up 5=12% in ONE MONTH.

Or what pulled Hindalco from 85 to Rs. 129…

all these stocks are providing liquidity to the FII money ….and when these people decide to sell these shares and buy something else…these stocks MAY come down too!!