Monday, September 1, 2008

Is it Safe to Invest in Indian Equity Markets ..

After the advent of globalization in mid nineties the Indian Stock Market has repeatedly shown its strength of being well regulated and trustworthy institute, thanks to the efforts of SEBI but still for Indian punters it is hard to digest the monotonous upswing in the capital markets from last few years . The main rationalities behind it is the periodic down trends in the market when it’s the small investors who have lost heavily, be it the black Monday after the fall of BJP in the general election , be it the havoc of rising oil prize or the inflationary pressures , is it common to only Indian mindset or is it a global trend of being a skeptical towards the stock markets ?

Last 8 months has been dreadful for the global capital markets due to sub prime woes which has engulfed almost whole of US and Europe due to securitization of Debt , the companies are still writing off billions of dollars of assets due to the subprime lending and the world commodity prices has also become a pain for central bankers , there are more than 60 countries facing double digit inflation , the oil bills is increasingly putting pressure on the inflation and growth of economies , Sensex along with the major world stock exchanges have seen major corrections , it has come down from the level of 21000 to 14000s , the real question now is that is the correction over and is it safe to invest in equities now ?

The Indian stock indices mainly Sensex and Nifty are seen as heavily overvalued by many of the analyst who keep bringing there dooms day theory now and then , they say that Indian market is at P/E ratio of 18 which is very high as other high growing economies like Korean , Brazil , Russia which is also showing tremendous growth is at a P/E of 11 , so is it worth investing in market at this time when Oil is boiling , federal interest rates has seen five negative interest changes in past 1 year just to pull the ailing US economy out of recessionary pressures and Japan is no more distributing dept at zero interest rates. Another theory much hyped by the promoters of doom is the redemption of foreign investor’s money from capital market to more secured bond market as the interest rates are hardening in India and other emerging economies, with these theory in newspapers now and then we can hardly blame the Indian mindset for panicking under slightest hint of trouble.

If we see the historic bull run , the shortest bull run lasted for 16 years in Japan and by that landmark we have barely reached the half stage , but again our impatient mind constantly remind us that our valuation are reaching a peak , the international scenario is no more stable with lot of economists say is the compounded effect of loose monetary policies right from from the dot comm. Bust and now they can no more hide it. . By analyzing our industrial growth one can find that India has shown a 7+% GDP growth in last 16 consecutive quarters , high industrial growth with full capacity utilization in most of the sectors , SEZ being seen as increasing the demands of industrial goods and for that capacities are increased to milk the profit , so is there any need to panic, When we compare Indian market to its peer we forget that India is one of the best regulated market where we are giving a big pie to FII’s , if we compare China where capital market is still suffering from xenophobia , FII’s are seen with distrust and most of the companies are state regulated we can easily find the answer to the high valuations , Indian market have 50% more listed companies compared with any Asian market which can be attributed due to loose IPO regulations which still need to develop to filter hundreds of dead companies coming to equity market for funding , the trading volumes are also a cause of concern for lot of companies and its only 400-500 companies which are actively traded out of 9000+ companies ..

So the question again comes ‘ Is it safe to invest now ? , Is it the time to do some bottom fishing ‘The answer is not easy but one thing is timely tested and trusted by all that if we are long term investor in any market we will seldom loose our money and most of the time can make a good Fortune , but timing the market is not easy., As warren Buffet says , don’t invest in equities, invest in business you trust and invest in them thinking that even if stock markets gets closed for next 10 years your company will still be there’. So what are you betting on!

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