“Thoda market ko stable
hone do, phir invest karenge”, exclaims a potential investor being chased
by every salesperson of a financial intermediary in these dampened markets. In
hindsight, the salesperson is offering the sanest advice to invest especially
when the markets are battered and bruised. However, the person who was thinking
to invest has never run out of reasons for his preference towards real estate
and gold over equities. His primary reason of abstaining from equities is
waiting for the Indian markets to resuscitate. While equity Investor continue to
sleep and invested heavily in gold and real estate, the markets are offering
them umpteen hints to resume investing.
European debt crisis
It all started in the late 2009. Commonly known as the
Eurozone crisis, the crisis made it almost impossible for some countries to
repay their government debts. Banks over there being grossly undercapitalized
and compounded by liquidity problems sent shockwaves among the global
investors. The investors were caught in the fears of sovereign debt crisis
amongst the European nations which was spread unevenly; most famous being
Greece. Speculations were rife nationally and internationally that Greece will
default on its debt. Sentiments were poor, markets crashed globally; Greece was
Europe’s best performing stock market in 2012 clocking 33%. All expert opinions
of carnage in the markets went for a toss along with the investor’s belief of
investing only when the markets are stable.
Political instability in UPA
“UPA proposes Mamata disposes” was becoming the norm in
everyday headlines; until one day Congress decided to part ways with its second
biggest constituent of the UPA with 19 members in Lok Sabha. She wanted the
withdrawal of FDI, rollback of diesel prices and raising the cap on subsidized
cylinders. All in all, she was firing cylinders from left, right and center.
Then the experts started claiming “although reforms will start, but political
stability is a concern”. Indian investors got another reason to wait and let
the UPA stabilize, and then they would invest. UPA was stabilized eventually,
but Investors continued to stay away while Foreign Institutional Investors were
enjoying the party. In fact, there were net redemptions in Mutual Funds by
retail investors.
Current account deficit and fiscal deficit
After politics was stabilized, then came the issue of
widening Current Account Deficit (CAD) and fiscal deficit faced by India.
Various economists and all sorts of forecasters were cutting down expected
growth rates. Every day we were getting a new growth rate ranging from 5 to 7
to 9 percent. There were some suave statisticians giving the numbers like 6.1,
5.2, 5.8 percent etc blaming everything on the CAD and fiscal deficit. In fact,
these two terms became so hot and sexy in the markets that it made every expert
sound very cool. Meanwhile Sensex almost touched 21,000, FIIs enjoying the party!!.
But investors were brainwashed that it’s a good time to invest but
paradoxically they were consistently warned against CAD and fiscal deficit.
Indian investors took the latter part more seriously and continued their own
party with gold and real estate. Let’s not discuss what really happened to
Gold.
Weak unemployment rate in US
The unemployment rate in the US jumped to 7.6% while the Dow
Jones was and continues to hit a new high every day. And then Mr. Bernanke
hinted the tapering of monetary policy rocking the Indian bond and equity
markets. We were more worried about FIIs pulling out their money (which they
did not); although the continuous bond purchases were not showing considerable
improvements in the employment data.
Weak Indian Currency
The rupee fell to an all-time low of 68 against the dollar.
The key reasons were widening CAD, fiscal, strong dollar (of course), weak
economic fundamentals, etc. Not to forget that problems relating to political
instability, Eurozone crisis and weak unemployment in US have been completely
resolved now! So Indian markets crashed because of the falling rupee (they say
so), bond markets took everyone by surprise forcing the RBI to step in and take
some strict measures while the “Potential” equity investors are still waiting
for the rupee to “stabilize” at 55 or 54 or 53 or whatever to enter the
markets. Meanwhile there was more news about the retail investors discontinuing
their SIPs and falling rental yields in housing markets.
Despite the political turmoil, massive terrorism and an
economy expected to grow by only 3.6%; the Karachi Stock Exchange has risen by
40% so far this year in local currency terms. This performance is second only
to Japan. While we do not expect some egregious terrorist attacks or the
situations like Greece to give us the opportunity to enter the markets, the
inconsistent selling of FIIs are a great opportunity for retail investors to
start entering. As per the studies, it takes only 60 best trading sessions for
an investor to lose opportunities in stocks. So either one can safely assume
that the gutsiest investors always gain in the stocks or the ignorant will
always continue to ignore the hints. I concur that times are bad but this is
the time to enter before it all starts getting better. So let’s not miss the
bus this time.
Source: PPFAS
