With Lehman failure and continuing global financial turmoil, all markets including Indian equities are showing a major decline and are likely to be under pressure for some time. However, buried within the stories of grim scenarios there are some interesting statements.
In the Economic Times of Sep.16, 2008, in a story titled ‘City bosses look East’, Stuart Fraser, policy chairman of the City of London, which is responsible for running London’s financial district said “globally and in the medium and long term, nothing changes the fact that economies such as China, India, Brazil and others are growing fast and will need financial services to help them in that growth. These are major medium term opportunities for City of London”.
In another story related to lay offs at Lehman and Merrill Lynch, Ambit Holdings, which is an Indian investment banking firm, announced that they had recruited Merrill Lynch’s Andrew Holland and his whole team on their equity proprietary team. It also mentions that a host of other Indian investment banking firms are looking at hiring some of the officials from these companies.
Mark Mobius, Executive Chairman of Templeton asset management and who manages about $40 billion in emerging-market stocks said in an interview to Bloomberg “Bank of America’s deal to take over Merrill Lynch and a U.S. pledge not to bail out Lehman indicate that financial markets are near the bottom. The U.S. Federal Reserve's plan to broaden a lending program, is also good news-these people are getting their acts together and making decisions that I think will really help a lot to stabilize financial markets around the world’’. Mobius also mentioned that he is increasing stakes in emerging-market banks and financial institutions. JP Morgan strategists led by Adrian Mowat have also advised investors to focus on economic fundamentals and areas of good economic growth rather than on the current movement of financial indices.
In my article ‘Sensex, Music & Headphones’ of June 27, 2008 I had written ‘ Presently we are in a transitional stage of this global shift of multiple dimensions and transitions could be slow and painful. There has been a lot of debate about economic decoupling and while it will be fallacious to expect a complete decoupling, Indian growth at 7.5-8% in the face of USA sub par growth will be noticed.
So while staying on the sidelines for any fresh investments will be prudent during this major crisis, from a medium term perspective, attractive buying levels seem to be developing in the Indian markets. Therefore, I will recommend holding on to your existing investments and adopting a systematic investing method for fresh funds.
Principles of appropriate time horizon, diversification and valuation remain sacrosanct as always.
Dr Sanjiv Mehta is the MD, Finance Doctor, a wealth management company and author of Winning the Wealth Game: Cricket Strategies for Financial Freedom.
Tuesday, September 16, 2008
Indian Nuclear Deal & Cautious Optimism about Indian Market
Indian markets went up by 600 points when a major hurdle of seeking waiver from Nuclear Suppliers Group (NSG) was crossed. Indian Nuclear Deal has been debated tremendously but the overall view is that strategically it will be beneficial for India in numerous ways. Apart from achieving higher energy independence and being able to sustain rapid economic growth, India will have access to important technologies in diverse areas including pharmaceuticals and space. Consequently, it will be able to leverage its existing advantages of favourable demographics and skilled workforce even more effectively.
From a capital markets perspective, this development has again focussed attention on the positive long term Indian story rather than short-term negatives and the present correction. There are some nascent signs that a cautious optimism about the Indian market is emerging. For example, USA market on Sep. 9, 2008 took a hit of almost 3 % while the Indian market as expected opened lower on this major global cue but recovered during the day. Interestingly, midcaps and small caps were in the positive territory. Derivative clues in the shape of Nifty Futures are at a premium for all 3 months. Although the market can be range trading for some time with levels lower than current levels quite possible, a significant upmove from this base could emerge sooner than expected.
My view as discussed and analyzed in my article Sensex, Music and Headphones of June 27, 2008 is that the market decoupling will eventually take place in the medium term although nobody can predict the exact timing. My recommendation will be to initiate, maintain and enhance your allocation to Indian equities with a five-year perspective of healthy returns and without trying to find the lowest point of the current correction. For NRIs, it becomes a nice entry point with Indian Rupee showing a significant correction in its long-term uptrend against USD.
Three principles of appropriate time horizon, valuation and diversification remain sacrosanct.
Dr Sanjiv Mehta is the MD, Finance Doctor, a wealth management company and author of Winning the Wealth Game: Cricket Strategies for Financial Freedom.
From a capital markets perspective, this development has again focussed attention on the positive long term Indian story rather than short-term negatives and the present correction. There are some nascent signs that a cautious optimism about the Indian market is emerging. For example, USA market on Sep. 9, 2008 took a hit of almost 3 % while the Indian market as expected opened lower on this major global cue but recovered during the day. Interestingly, midcaps and small caps were in the positive territory. Derivative clues in the shape of Nifty Futures are at a premium for all 3 months. Although the market can be range trading for some time with levels lower than current levels quite possible, a significant upmove from this base could emerge sooner than expected.
My view as discussed and analyzed in my article Sensex, Music and Headphones of June 27, 2008 is that the market decoupling will eventually take place in the medium term although nobody can predict the exact timing. My recommendation will be to initiate, maintain and enhance your allocation to Indian equities with a five-year perspective of healthy returns and without trying to find the lowest point of the current correction. For NRIs, it becomes a nice entry point with Indian Rupee showing a significant correction in its long-term uptrend against USD.
Three principles of appropriate time horizon, valuation and diversification remain sacrosanct.
Dr Sanjiv Mehta is the MD, Finance Doctor, a wealth management company and author of Winning the Wealth Game: Cricket Strategies for Financial Freedom.
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