All is not well: Investors need to protect capital

The global news flow is pointing towards the fact that 'All is not well' for risk assets and equity markets. Despite Eurozone giving indications of stitching a package to bail out Greece and other countries, or ministers of Union Govt. in India calling for a temporary truce, the global markets are not yet out of the woods. We are inching closer towards a 2008 like situation, when all markets nosedived in tandem. The only exception till now has been the real estate market which is still holding fort despite heavy odds. Equity markets world over have shown strong bearish overtones. Last week, commodity markets, including gold and silver, have shown signs of capitulation. Real estate market is the last to show a decline, when liquidity is squeezed out. The announcement of a massive debt raising programme of over Rs.50000 crores by Govt. of India is likely to give a huge negative on the liquidity front. With RBI unrelenting on the hawkish stand on rate hikes the things do not seem rosy at all for the huge debt ridden real estate sector. It is only a matter of time when the downturn will gather momentum.

The high level of Nifty VIX (volatility index) is clearly indicating nervousness amongst market players. What should retail investor do at the current juncture? As indicators are pointing towards a 'lower top and lower bottom' formation in the Indian equity markets, investors are advised to book profits on every rise. Fresh investments should be put on hold till markets firmly make a bottom, anywhere in the range of 4500-4700 on the Nifty. That would be the time to make fresh purchases in equity markets. On the other hand, it is also not advisable to shift money to commodity markets, as global downturn is likely to take a heavy toll on the commodity prices. Precious metals like Gold, Silver, Palladium may show a temporary bounce due to the ensuing festive season, but they are ripe for a steep fall of 15-20% in the medium term.

The age old adage 'Cash is King' seems to be the best option at this juncture. Investors are advised to hold enough cash (and bank deposits) in their portfolio, and wait for better opportunities to emerge for investment in risk assets like equities and commodities. For India, things will start to improve in the next 3-4 months, once RBI signals an end to the high interest rate regime and commodities, including crude oil, slip to reasonable levels. The fortunes of Indian economy will hinge largely on the developments on the political front, where the situation continues to remain uneasy.