When one has to just sit back
There are times in the stock markets where there are events on a daily basis and reacting to those events with pulls and pushes on both sides might not be the best thing to do. I believe that we are in a similar scenario today where on a fundamental basis the valuations look comfortable and most of the negative news flow seems to be in the price, however various unpredictable events like the happenings in Egypt, Libya and the consequent increase in crude oil prices is hitting the markets negatively. If we go back a year from now the two main concerns that were there for the markets were
US Recovery - The
PIGS – This was the biggest concern for the markets a year back with most of the PIGS countries staring at debt defaults and the expectation that the entire thing could also spread to the larger European countries. However with the set up of the Euro zone rescue fund and the recovery in key European countries along with Fiscal consolidation in the troubled ones this issue has totally gone into the backburner. Stock markets of most troubled countries have bounced back from their bottoms and the larger markets of
As we stand and look today the markets which were facing the most troubled and where investors were highly underweight have infact turned out to be outperforming markets. On the other hand the fancied emerging markets have seen significant corrections. The current concerns for emerging markets are
Inflation – Inflation is the biggest story going around for emerging markets at this point of time. Most investors are shunning high growth emerging markets on inflationary fears, although a large part of this inflation is largely due to the policies of the US Fed. I believe that sooner than later the developed world will also stare at inflationary pressures and at that time it will be a double whammy for them. There is a realistic possibility of stagflation in the
Middle East Concerns – Although the happenings in the middle east and specifically
Food inflation has come off sharply over the last two weeks and should continue its declining trend going forward. There were a lot of concerns from the industry about environmental issues holding up projects and that seems to be getting addressed now.
At the ground level companies seem to be doing well but are concerned about the liquidity situation and the fact that RBI should not tighten too aggressively as it will not bring down global commodity prices but will surely lead to a compression in demand and economic growth.
Given the long term growth prospects of the Indian economy the current market presents an attractive entry point. Till six months back
I believe that the markets would have bottomed out had it not been for the recent crude price spike and a correction in crude oil prices will lead to a sharp rally. The continued weakness of the USD in light of the crisis in
However I believe that today we are at a point of time in the markets where if one is invested it is time to just sit back and not react to events on a daily basis. Mid cap company stock valuations have come down to extremely attractive levels and a large number of established and high growth mid cap companies are today available at single digit multiples. Similarly large cap valuations have also compressed significantly. Unless and until we see a big oil shock (an unlikely scenario) the markets should hold the panic bottoms hit a couple of weeks back.
It looks like a time to buy and hold rather than sell and go away.