Is "India Story" a scary investment now?
Margin calls are coming in, stocks being open sold for recovery and trade accounts being suspended by brokers. Analysts are seen sending SELL calls on a regular basis and those Stock Research calls don’t come that often now. This seems to be the picture most investment firms and brokerages are trying to brush on the canvas. Log on to Moneycontrol and you will read row after row of caution calls for Midcap and Index stocks and do a search for Bear Run+Sensex on Google and you will come up with 31200 hits.
This is the scary story of Developing India where after 4 years of unprecedented gains, a 40% correction can make an investor believe that we are entering a bear phase and that India won’t shine for the time being anymore. But is the story really so bad? Inflation at 11.91%, Crude at $130 per barrel, Auto industry slowing down, Banking bleeding, Interest Rates rising, Real Estate expecting a further correction of 25%....hmmm….seems to be very bad, doesn’t it? But is it really so?
Let’s look at Vietnam then. A year ago Vietnam was among the world’s hottest stock markets. Exports and investments were soaring and property prices were shooting through the roof. Today, it is one if the worst performing markets in the world. Inflation there hit 25% in May, the trade deficit reached $ 14.8 billion in the first six months of 2007 and the market has corrected by more than 60% with the average P/E falling by 76%. It is the cheapest market to invest in today.
This is not unique to Vietnam alone. Pick any global Index and compare its current performance to that of the past 2 years and you will see a similar picture, perhaps a little more stab at times. When everyone wants to invest, its time to sell. This is what happened in the 2000 dot com bubble burst and the same is happening now.
The problem is that investors in India over the past 4 years have been so used to seeing returns of 40-60% plus that they think these numbers fall from the sky. "If a stock is not giving returns of 30% plus then it’s not worth the money", they say. Bonds were termed as the option for the weak hearted. If the GDP is not at 9% plus then the Indian economy is slowing down!! The fact is that the Indian GDP growing even at 8% annually would be rivaled only by that of China amongst the BRIC natios. There are just 28 countries in the world whose annual GDP growth is at 8% plus. But panic is the message that echoes through a country where speculation rules the roost.
If Indian markets in the past were attractive then today they are unsurpassed in terms of valuations. What’s required is to align portfolios away from interest-sensitive sectors, particularly banks, brokerages and insurance subsectors for the time being and have a long term investment approach.
Margin calls are coming in, stocks being open sold for recovery and trade accounts being suspended by brokers. Analysts are seen sending SELL calls on a regular basis and those Stock Research calls don’t come that often now. This seems to be the picture most investment firms and brokerages are trying to brush on the canvas. Log on to Moneycontrol and you will read row after row of caution calls for Midcap and Index stocks and do a search for Bear Run+Sensex on Google and you will come up with 31200 hits.
This is the scary story of Developing India where after 4 years of unprecedented gains, a 40% correction can make an investor believe that we are entering a bear phase and that India won’t shine for the time being anymore. But is the story really so bad? Inflation at 11.91%, Crude at $130 per barrel, Auto industry slowing down, Banking bleeding, Interest Rates rising, Real Estate expecting a further correction of 25%....hmmm….seems to be very bad, doesn’t it? But is it really so?
Let’s look at Vietnam then. A year ago Vietnam was among the world’s hottest stock markets. Exports and investments were soaring and property prices were shooting through the roof. Today, it is one if the worst performing markets in the world. Inflation there hit 25% in May, the trade deficit reached $ 14.8 billion in the first six months of 2007 and the market has corrected by more than 60% with the average P/E falling by 76%. It is the cheapest market to invest in today.
This is not unique to Vietnam alone. Pick any global Index and compare its current performance to that of the past 2 years and you will see a similar picture, perhaps a little more stab at times. When everyone wants to invest, its time to sell. This is what happened in the 2000 dot com bubble burst and the same is happening now.
The problem is that investors in India over the past 4 years have been so used to seeing returns of 40-60% plus that they think these numbers fall from the sky. "If a stock is not giving returns of 30% plus then it’s not worth the money", they say. Bonds were termed as the option for the weak hearted. If the GDP is not at 9% plus then the Indian economy is slowing down!! The fact is that the Indian GDP growing even at 8% annually would be rivaled only by that of China amongst the BRIC natios. There are just 28 countries in the world whose annual GDP growth is at 8% plus. But panic is the message that echoes through a country where speculation rules the roost.
If Indian markets in the past were attractive then today they are unsurpassed in terms of valuations. What’s required is to align portfolios away from interest-sensitive sectors, particularly banks, brokerages and insurance subsectors for the time being and have a long term investment approach.
3 comments:
nice one...keep up the good work. write something about short coverings. that should be interesting..Karan.
a good eye opener. i did not know about the vietnam thing. cheerios
nice one...focus on BRICs..compare the IPO's Inflation impact of oil prices on BRICs
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