Tamilnadu Investors’ Association – Investors Digest
by Vivek Karwa, CFPCM ,Investment Strategist & Retirement Planner
110818: We had been mentioning that 17500 – 17280 remains to be a critical support for the Sensex since it has tested it twice in the past and held on. The index finally dropped below the crucial level and is consistently trading below it, thanks to the global situation and also the internal confusion which we are witnessing. A kind of panic has already set into the minds of investors and mid cap stocks are being thrashed by the day. The next major support for the Sensex comes only in the range 15900 – 15650 which looks most likely to be tested.
Our internal fundamentals have deteriorated to some extent and hence we are seeing a confidence loss among the investors. The biggest jolt was seen when the news of Standards and Poors downgrading America’s rating from AAA to AA+ hit the market hard. The turmoil US and EU countries are witnessing is very well known. Though the downgrade news did not surprise anyone it did hit the confidence further. The fear is if US defaults many countries which are heavily invested in US treasury will loose their investments.
Some of the major countries which are invested in US are as follows:
China Mainland – 1159.80 Billion USD, Japan – 912.4 Billion USD, United Kingdom (incl. Channel Islands and Isle of Man) - 346.5 billion USD, Oil Exporters (incl. Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait,Oman, Qatar, Saudi Arabia, the United Arab Emirates, Algeria, Gabon, Libya, and Nigeria) – 229.8 Billion USD, Brazil – 211.40 Billion USD, Taiwan – 153.4 Billion USD, Caribbean Banking Centers (including Bahamas, Bermuda, Cayman Islands, Netherlands Antilles and Panama. Beginning with new series for June 2006, also includes British Virgin Islands.) – 148.3 Billion USD, Hong Kong – 121.9 Billion USD, Russia – 115.2 Billion USD, Switzerland – 108.2 Billion USD, Canada – 90.7 Billion USD, Luxembourg – 68 Billion USD, Germany – 61.2 Billion USD, Thailand – 59.8 Billion USD, Singapore – 57.4 Billion USD, India – 41.0 Billion USD
We still feel the world is reading too much into the rating. AAA to AA+ does not mean US will default tomorrow. The main worrying factor is that US will take many years to normalize from here and we also fear that US may take whole of this decade to come back to growth path. The main reason is that the US is a capitalistic country and after getting hurt in the 2008 recession the citizens have become Savers from Spenders. Hence how many every QE’s the government may introduce, the public may start saving more and more!
Small reforms can push the Sensex up even in this turmoil, while the US limps over this decade, India can leap. Finance Minister is trying to cut the deficit by taking away benefits from the people which are not making headlines! This is a smart move by him but the public will suffer since things are only going to cost more for the Aam Aadmi. One benefit every Aam Aadmi should demand is the immediate reduction in the fuel prices since crude has cooled off, and that can help reduce inflation so that RBI’s hyperactive rate hikes can take a break.
Meanwhile Goldman Sachs has upgraded India’s rating from Underweight (not favorable) to Marketweight (neutral) showing the confidence in India’s consumption story and also since the valuations have started looking very good now.
We are seeing a major turmoil in the political arena and Anna single handedly shaken the whole administration. It could be negative in short term but if we have a strong anti-corrupt system in place FII’s will start flocking towards our country since their would be a major change in the way the world is looking towards our country today.
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 Management Committee Member of TIA but the views mentioned are of his own and not necessarily that of TIA.
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