TamilNadu investors Association – TIA

by Vivek Karwa, CFP^CM

170510: Indian market is currently witnessing the disadvantages of globalization and the perils of being coupled with rest of the markets in the world. No one can invest today without being aware of the global situation and without learning about the possible damage the liquidity can cause if in case it was to flow in reverse direction. Indian markets compared to other global indices usually fall more sharply when selling by FIIs happen. One of the major reason for this is when FIIs come to sell there are very few domestic buyers who can absorb the selling pressure. Even the mutual fund industry has grown many fold the equity portion still remains very low vis-à-vis the overall assets managed. More and more Indian retail investor needs to be educated to invest atleast small portion of their savings in equity markets. Regulators, Exchanges and Investor Associations are doing their best in taking this movement ahead, hopefully the results would be visible few years down the line. The larger the Indian investor participation the lower would be the volatility in the markets.

The market euphoria over the recently announced $1 Trillion EU Stabilization Fund lasted just for a day and the fears that the crisis may break the European Union and the Euro have grappled the markets this time. The Stabilization Fund announced is enough to postpone the crisis for few years but the markets fear that the Austerity measures imposed on these PIIGS countries may not be successful in implementation. There are protests and violence already seen on the roads against these proposals. Even if the governments are successful in implementing these schemes the markets fear that this may stall the growth in the region. We don’t think the ECB would allow the region to collapse so easily and hence only time can tell if more steps are taken to contain the crisis, hence every news flow may bring in volatility in the markets.

We are hopeful that the crisis may recede over a period of time as the other part of Europe is still on the growth trajectory. Last month we has mentioned few data’s which suggest towards the recovery phase. There is consensus among all the economists and analysts that the US is on a strong recovery more. This gives lot of comfort to the export oriented economies majority of them from Asia.

India remains the favorite destination of global investors to participate in the growth. The Planning Commission has set a target spend of 1 Trillion for Infrastructure Sector in the 12th Plan. The 3G auction has surprised everyone. The auction amount already stands at more than Rs.60000 which is almost double than the budget estimate and now some estimates suggests that the final figure may be around Rs.90000 Crs. The government may rack in the large mullah but one has to be cautious on the telecom sector which is committing such large sums for the technology. This will benefit large telco’s due to the consolidation activities which may kick in. The 3G auction amount will considerably reduce the fiscal deficit problem of the government. The result may be that India may go in for a re-rating. Hence these dips are excellent opportunities for the investors to accumulate stocks which would immediately bounce back on the slightest stabilization in the European region.

The support for Sensex as mentioned in our earlier article remains in the range 16300 – 16200. One can continue looking at the Infra space for investment opportunities and should simultaneously try to avoid the realty space. Inflation is easing and due to the current volatility in the markets and global uncertainties the central banks may go slow on hiking interest rates. Education and Health Care are the sectors still neglected from reform measures.

Disclosure:- It is safe to assume that the author may have interest in the sectors recommended in this news letter. Seeking personal advice from your Financial Advisor is recommended before acting on any of the substance given herein. The numbers, figures, etc., presented may have been taken from various sources.

Vivek Karwa is a Committee member of TIA, Views expressed here are his own and may not be that of TIA.