Is it time to panic or is it time to smile? Depends on which side of the wall you are in. If you are a contrarian, sitting on cash patiently for this day to come, you have reasons to rejoice. But, has the day arrived?
To consider this the opportunity we need a short term bad news and a long term good news. That is how markets are timed (if at all they can be!).
So here, we have a short term bad news.
Standard & Poor rating agency downgrades US T-bills from AAA to AA+. This by itself is not the problem. US has been having its troubles for a while now. This downgrade is more likely an acceptance of the fact that US is in trouble. But look at this – US owes India close to $41 billion dollars (and China almost 3 times that amount, if that is some consolation!). Not that we fear that US will default on its payments, but this for sure changes the risk profile. Already RBI has raised its repo rate last week and now, foreign money gets more expensive! The hedge opportunity is lost. Highly leveraged companies will feel the pain and that will sting. Bad corporate results could be expected in the next few quarters. So there you go market – Hashaaa, busshaa all fall down!
Now, the long term good news
Except for our export markets’ exposure to Europe and the US, we as an economy are fundamentally fine. Demographically we are compelling, a potentially high growth market. Goldman Sachs upgrades India rating. (If you can panic at S&P’s rating, why shouldn’t you party for GS rating?). Our exporters have learnt to live with the US in recession for a while now. As for the higher interest rates, yes that is worrying. However, the hay days of cheap loans are over. A home loan or personal loan has become more expensive for the common man! India Incorporation will learn to accept this and work their way around this too. This too looks fine in the long term.
Beware! The eternal fight between the fundamentalist and the technical analyst rages on. You will keep encountering reports that say, ‘if market breaches this level then the next support level is a few thousand yards down there’ and so on. Fundamentals can all be gung ho, but it is sentiment that rules the market. Nobody wants to lose hard earned money to madness. A retail investor is worried about inflation. To him the fixed deposit looks very attractive. He may stay out of the market. And this may make the recovery slower.
So what should you do?
If your time frame is a good 10 – 15 years, then you should look at gradually investing and be fully invested in about 8 – 12 months time in the market.
There are still some amazingly solid companies now trading at attractive prices. There are a few zero debt companies and a lot of companies who don’t wake up with the expectation that an American will loosen his purse today. They are your best bet.
This is an opportunity no doubt to invest in both equity as well as debt instruments. If we are to expect the RBI to get more benevolent in the future and stop increasing interest rates further, then the high interest rate days would be gone soon. So, rebook your FDs at current rates and keep watching. Happy investing!
considering the easy money that has been around in india (causing substandard/ uncompetetive/ inflated goods and services to become the norm) real long term investment has become a thing of the past.
with this correction the market will probably gain some value.
that is, if the natural tendency of indian managers – read manipulators (mostly from rural/ semi-rural backgrounds and regions to cheat and bribe the regulatory bodies) and the gullibility of the investing public (who bury their head in the sand and revel in "feel good" returns and myths), can be curbed.
Very interesting and informative. Thanks