Key risk for stockmarkets?

Key risk for stock market

Nicely written and vivid account on which the share market flourishes.
The political scenarion quite eveidently is most important of all is not that helpless.
The growth of industry output is sutained,
The calibre and standard of indian industry the large scale one is of class standard.
The managment available resources are many fold and institution of high premium in the country.
The corporate conlomerate are not few but quite enormous quantity and quality.
The experience of running stock market by sebi and other nodal agencies is improving ,
Hence fair value for not total tumble down of stock market but be aware of the sudden
hurricane in the BIG BAZAR.

FIIs Bhangara....

Well, the cautious undertone in the market continues. When the Sensex fell harshly during March, many participants attributed this to the 'March' effect, meaning tax adjustments, VAT and of course the impending result season. Well, April is on and the nervousness still continues.

The key concerns of the market continue to be related to the FII movement. The fear is that the Fed chairman, Mr. Greenspan, will hike US interest rates faster as the year progresses and this in turn will make emerging markets like India look more riskier as compared to the US. The strengthening signs from the dollar are also considered ominous, indicating a US recovery.

On the other hand, policy makers in India are well aware of the danger that FII dependence poses. In fact, the RBI Governor has gone on record to say that the FII versus FDI ratio in India is the exact opposite of the situation prevalent in China, and would like to see more FDI flows. The FM too, by his tax related actions, has shown inclination to try and increase domestic participation in Indian equities, in a bid to try and inculcate an equity culture that will save the Indian markets from too much FII dependence in the long run.

But the fact remains that foreign investors will continue to be the key drivers of equity market sentiment in the foreseeable future. And try as we might, it is naïve to think that we can avoid a sell off in future.

The thing is, as India continues to reform, it will become more and more part of the globalised world. This will open doors, as well as bring in aggressive competition. But the more aligned we become to the globe, the more accessible we become to the foreigners, the more it will lead to confidence building that the India story is not just a flash in the pan and will therefore attract both FDI as well as FII flows.

As we continue to resolve our disputes with our neighbours, India will continually emerge as a safe place to invest capital and money. Our cost competitiveness and skills are a given. It's the system that has to deliver. Till such time, FIIs will continue to be more fickle than they usually are and so will be the stock markets.

But in this whole scenario, Indian Inc. performers will continue to reward investors, whether FIIs stay or exit. A good investment always finds buyers, albeit with a lag. Keep looking at quality companies to invest in, stagger your investments and show discipline when they reach your target price.

cheers,
nkpanjiyar

Why should the FIIs pull out after investing a higher levels. The possibilities are that they are here for a long term.

Wow....another interesting thread,again by nkpanjiyar....Very insightful.Thanx again!!

Really a nice note. I also feel investor education and grievances handling mechanisms would play a mejor role in reducing the risks in the market for small investors.

jnaik22

Processionary caterpillars travel in long, undulating lines, one creature behind the other. Jean Hanri Fabre, the French entomologist, once lead a group of these caterpillars onto the rim of a large flowerpot so that the leader of the procession found himself nose to tail with the last caterpillar in the procession, forming a circle without end or beginning.

Through sheer force of habit and, of course, instinct, the ring of caterpillars circled the flowerpot for seven days and seven nights, until they died from exhaustion and starvation. An ample supply of food was close at hand and plainly visible, but it was outside the range of the circle, so the caterpillars continued along the beaten path.

People often behave in a similar way. Habit patterns and ways of thinking become deeply established, and it seems easier and more comforting to follow them than to cope with change, even when that change may represent freedom, achievement, and success.

If someone shouts, "Fire!" it is automatic to blindly follow the crowd, and many thousands have needlessly died because of it. How many stop to ask themselves: Is this really the best way out of here?

So many people "miss the boat" because it's easier and more comforting to follow - to follow without questioning the qualifications of the people just ahead - than to do some independent thinking and checking.

This resemblence is also found in the markets..We find that when some fund or stock is in the limelight thru tips, people have their herd mentality at work.They just buy stocks without even knowing what is the company or what does it manufacture or produce..This results in the crash after the bubble bursts.

"Don't follow the follower"

cheers,
nkpanjiyar

Stock Markets: This, too, will pass away!

As the Indian equity markets tread on a volatile path after the bull run that was witnessed in the past few months, a quote perfectly symbolizes the thought process going in the minds of investors at present - 'This too will pass.' And in these volatile times, it seems wise to go back to some of the investment basics that have faced the test of times, yet remaining as true to the core as they were when thought out decades back.

The famous investment guru, Benjamin Graham, once said, 'Investment is most intelligent when it is most businesslike.' Yet, if one were to take a look at the profile of an average investor in the equity markets, there emerges a very capable businessman who has gained success in his own business but has operated in the markets with complete disregard of all sound business principles of business. In this regard, let us take a look at some of these principles that have been completely violated in the markets, but if followed with discipline, would result into investors earning adequate returns.

The first of these principles, as given by Graham, is to 'know what you are doing.' This is similar to knowing your business. In the investing sense, this means that an investor should not try to make business profits out of his investments. More simplistically, this means that he should not try to earn returns in excess of normal interest and dividend income, unless he knows as much about his investments' values as he would know about the value of his business. If he defies this basic principle, he is not an investor, but a speculator who is betting on his intuition without the adequate knowledge to back the same.

The second principle is 'not letting anyone else run your business' (stock market investment, in this sense) unless one is pretty sure of the integrity and ability (the management of a company or a mutual fund). This rule would help investors determine the conditions under which he entrusts his money for someone else to manage.

The third principle is for the investor to 'undertake an investment only when a reliable calculation indicates that there is a fair chance for a reasonable return on the investment.' More simply, based on this principle, an investor's strategy for earning profits should be based on careful calculations and research rather than plain optimism. Not following this principle is equivalent to putting your principal to a considerable risk.

And finally, the most important principle is to 'have the courage of knowledge and experience.' This is to say that once you have arrived at a conclusion from the facts and careful calculations, you need to act on the same caring not much about what everyone else is doing (or betting on). This is discipline, the most important rule at the root of sound investing.

By following these principles and not giving in to greed/fear that rising/falling markets bring with them, you can ensure that the consequences of your mistakes would never be disastrous. And more importantly, you will not blame the stock markets for your losses. When that happens, no matter what the markets throw at you, you will always be able to say with much confidence, 'This, too, will pass away.' Amen!

cheers,
nkpanjiyar

3 areas of caution...

Notwithstanding the temporary bearish sentiment, the overall rating of Indian equities still continues to be 'overweight' in the minds of most investors.

The three key areas where experts differ from the investors' views are:

 the role of cyclical versus structural factors in the acceleration of industrial production and GDP growth
 the extent of any likely rise in interest rates and
 the vigour of the capex cycle.

Role of cyclical Vs structural growth drivers

Market view: Market participants seem to believe that the recent improvement in the industrial cycle and growth in corporate earnings is entirely a structural phenomenon and that this is likely to continue going forward, come what may!

Experts view: Experts believe that, while the recent changes in the global economy direct towards a more structural framework for the long-term, a large part of the recent industrial production acceleration has been driven by cyclical global factors. Low domestic interest rates, premised on a weakening dollar, have supported industrial expansion plans and household consumption spending. In addition, the pick up in goods exports has supported industrial production. As low interest rates boosted consumption in the US, India's exports to the US and other US demand dependent countries remained high. Thus, the acceleration in India's export growth appears to be largely a reflection of the demand cycle in the US.

Interest rates rise

Market view: One of major arguments that have surfaced against the possible rise in domestic interest rates is that, with the central bank (RBI) having a significant amount of sterilized liquidity, there should not be any need to raise interest rates even if forex reserve accrual slows.

Experts view: Experts believe that the RBI no longer has a choice of maintaining low interest rates. Incrementally, the RBI has been concerned with low rates driving consumption, which in turn is pushing the trade deficit to an all-time high. With the US interest rates picking up at a 'measured pace' it will not be long before the domestic rates follow suit (albeit not at a similar clip as that of the US).

Vigour of the capex cycle

Market view: The government and corporate sector have raised the noise levels on their intention to invest in infrastructure and manufacturing respectively for the past two years. Most investors believe a strong pick up in capex will drive growth over the next twelve months even if the cyclical factors reverse.

Experts view: Experts believe that the capex under implementation has only witnessed a weak recovery. Their interaction with some of the major banks has confirmed the fact that the corporates are yet to include capex borrowings in their 'non food ' credit demand and in contravention to the reports in the pink papers, the demand so far has mainly arisen for working capital requirements.

The bottomline is...

...that a major acceleration in investments and job growth will be critical for reducing the Indian economy's dependence on cyclical drivers. However, the likely rise in real interest rates and the slowdown in export demand driven by the global trend is likely to result in the withdrawal of the extraordinary external stimulus, which over the last few years has boosted the industrial growth.

The intention of highlighting the above concerns is not to act as doomsayers but to caution investors of the possible slowdown in the economic growth and the resultant shying away of the foreign investors. What investors need to comprehend is the fact that there are certainly some long-term growth stories visible amongst Indian equities but they need to exercise caution about the value of their 'pick' and the price they are willing to pay. Reiterating Mr. Buffet's view "It is only when the tide goes off that you realise who is swimming naked."

cheers,
nkpanjiyar

I would ask the readers to read this post again. Don't be panic.

Thanks,
nkpanjiyar