The markets are moving like a pendulum. They are reaching extremes. On one day they touch a peak, and the next day hit rock bottom, giving the shivers to investors, especially individual investors. Recently, they touched 13,000 and now they are up at the 16,000 mark. According to analysts, the markets could be touching 20,000 in the next few months.
The present reason for euphoria is the interest rate cut by the Fed. The US Federal Reserve's decision to cut discount rates by 50 bps had boosted sentiments across the global markets. The cut was more than expected. The markets globally went on a upswing mode. The interest rate cut would mean lower cost of funds and higher incomes for the corporates.
On the contrary, during the past few weeks, the markets had witnessed a consistent decline. One major reason was the sub-prime crisis in the US. According to analysts , the domestic markets have not completely discounted the sub-prime crisis in the US. Indian markets are integrated with the global markets and influenced by developments in other countries . The country's capital markets are influenced by global developments because of the active participation of foreign institutional investors (FII).
Apart from the economic factors plenty of other factors also affect the markets. The stock markets are barometers of the economy and reflect the potential of the corporates listed on them, and the direction and health of the economy. If a country's economy is doing well and expected to grow at a healthy rate, the market is usually expected to reflect that. The direction of our markets would be along the lines of the global markets. The link between the Indian bourses and the global markets has strengthened considerably . As such, the trend may largely be dictated by global cues rather than domestic events.
FIIs play a major role in the domestic markets. Ample liquidity with FIIs drives the markets in either ways. When they enter, the markets rise. When they exit, the markets fall. Individual investors should not get too bullish or panic in either of the circumstances .
They should hold on to their equities. Bear phases may give an opportunity to pick up value stocks. It's important to focus on the longer term. The longer term call on the markets remains positive. However, in the near term, we may see volatility and we will see uncertainty at least for the next 2-3 months. Bull phases may offer opportunities to exit some stocks and book profits.The outlook is positive on the long-term India growth story.
The corporate earnings have been very robust. Inflation is under control. Interest rates are expected to fall. Investors should not base their investment decisions on the actions of the FIIs alone. Investors should consider the state of the economy, the sectors, and the markets. Both, the economy as well as markets, are strong and mature. There is no need to worry on that front. The government and the Reserve Bank of India are closely watching the liquidity situation and are equipped with enough tools to take proactive actions to prevent the situation from taking an ugly turn.
Investors should not get carried away by the market swings - upwards or downwards . Investors should choose fundamentallystrong investments that have a proven long-term record of stability, rather than try to maximise short-term gains. They need to have a long term focus and strike a balance between investing in stocks and fixed income assets.
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Source: ET
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