FEAR GRIPS INVESTORS

[Dr. Sanjiv Agarwal]

Current Economic slow down world over and fear of double dip in US and other countries shook the stock markets in India and else where alike. Not only this,China’s economy is also slowing down and Federal Reserve in US in also a worried regulator. The axe of recession was so sharp that it hit all- stocks, currencies, bullion or oil. The Fed Reserve has maintained  ‘significant downside rises to the economic outlook’. So far as stocks are concerned, investors- small and big ones- are selling literally every thing. Obviously, things aren’t getting better as expected. There is significant recession inEuropetoo.  In nutshell,  world includingIndiafaces economic  crisis and unfortunately, it is growing rather than being contained.  Sovereign debt problems have started mounting, as threat to currencies cries. With overall falling markets, what is at stake now is investor and consumer confidence which has shaken up. We should not forget that financial markets are all about confidence and sentiments.

Our stock markets too are in shambles with both benchmark indices seeing sharp declines during the last week gone by. BSE sensex is now close to 16K mark. Indian rupee has also weakened as it has inched close to Rs 50 a US dollar. This will adversely impact Indian companies and importers.

From investors view point, present times are challenging. One need to tread cautiously and not loose patience. The investors must realize the fact that current valuations seem to be attractive atleast for long term bet and it is an opportunity to go in for value investing. One should identify stocks and sectors  which are now available at decent valuations despite being hit by current volatility. The current market offers opportunity for making long term investments in fundamentally strong and futuristic businesses. Banking and infrastructure could be such segments. Companies with lower debt component could be another area as higher interest rates  will not burden them much. Similarly, companies with products commanding mass consumption will continue to flourish despite inflationary trends. This is the time to apply principles of economics to stock investment theories. Investors may opt for high dividend paying cash rich companies with sound corporate governance. However, it would be desirable exercise restraint in primary market investments where IPOs or FPOs are hitting the market with hefty premiums. It must be borne in mind that present market conditions do not warrant such high valuation, more so when calculations were done earlier when market was better.

It is not that one should invest in stocks. In current scenario, it may also be wise to invest in debt funds and good company’s fixed deposits to earn reasonably good interest as the interest rates are higher. One can distribute the investment over different products or schemes or deposits. Sector specific mutual funds and buying gold at drops may also be thought of. Those with surplus money may also scout for cherry- pick of real estate properties as real estate too is in lull and one could strike a good bargain.

All said and done, a word of advise- do not invest blindly without verifying the facts of investee companies, promoter’s credentials, past track- record and legal clearances.