Monday, August 30, 2010

Equity markets ripe for profit booking!

Consider the fact that BSE Sensex and Nifty have given a return of around 125% over their March 2009 lows. Would you not like to take some money home? Although, as a Financial planner I am not supposed to advocate timing the market, but then it is prudent to suggest partial profit booking. After all investors take the risk for making money on equity markets, and profit booking is a means to realise those gains.

The recent signals emanating from global markets do not instill confidence in the sustained bull run, our markets have to take a breather before they gather enough steam to scale new highs. The global recovery based on stimulus packages seems to have run its course. IMF sees growth slowing down in top 3 economies of the world: USA, China and Japan. The strengthening of the US Dollar and the Japanese Yen, considered as safe havens in a crisis situation, is a pointer in this direction. Foreign institutional investors have started booking profits in some frontier markets such as Vietnam, Pakistan and Ireland. India and China could be next on their radar.

In such a scenario investors are better advised to book profits, especially in the momentum stocks/sectors which have run up too fast in the past few weeks. Investments on declines can be considered in the sectors that have lagged behind in the last bull run. They could be the ones that could help you ride the next bull run. I have an inkling for Telecom (Bharti Airtel) and Oil (Reliance Industries). However fresh investments could be staggered over the next 3-4 months. However investments in Mutual funds through SIP route should be continued religiously, with the option of a top up if the markets dip substantially. Investment in Gold, also on declines, could also be considered as it is likely to pay rich dividends as the demand for gold has been going up steadily without any commensurate increase in supply. 

Monday, August 16, 2010

India set to become World's fastest growing economy

The 'Tiger' is set to overtake the 'Dragon' in the next 3-5 years. If the recent Morgan Stanley report on Global growth is to be believed, India is set to overtake China to become the fastest growing economy in the world by 2013. while India's GDP growth is expected to climb steadily towards 9-9.5% in the period 2012-15, China's growth is expected to cool down to 8% levels by then.

As the death rate and the birth rate are expected to fall in India, it can hope to get the largest addition to the working population during this period, leading to a quantum jump in productive capacity. this is likely to push up the net savings rate which is currently around 35% of GDP. The FDI flows to India in terms of percentage of GDP (3%) has already overtaken that of China in 2009.

However, this scenario can be created only if the government is able to pump in the necessary resources to boost infrastructure development. Another issue would be the ability of the Govt. in handling the internal security issues of naxalism and separatism. The instability on the political front can jeopardise the growth projections, as it leads to critical loss of man days, leading to a dent in production capacities. On the other hand, the Govt. will have to improve the productivity of the agricultural sector to be able to feed its burgeoning work force, and control the run away food prices, which could become the nemesis of the govt.

If indeed India is able to catapult itself at the top of GDP tables, investors in equity markets are in for some bonanza. The period from 2012 onwards should, in all probability, be the golden period for Indian stock markets. Investors are advised to start investing selectively, and wait for any dips in the markets to put in their money into Indian stock markets, to ride the next bull run. But remember, there could be a temporary dip in the markets before the markets cross their previous 2007 highs, be prepared for that eventuality. But the long term bullishness in the markets is surely evident, for all investors to cherish.