Is this a good time to buy Indian stocks?

Sep 24, 2011

In this issue:
» 13 sovereign debt default in last 13 years
» Greece on brink of biggest sovereign default
» Rupee suffers second-biggest fall in history
» The holding period Indian investors has gone up
» ...and more!

Inflationary concerns, fears of slowdown in domestic economic growth and the turmoil in the global economy have taken a toll on the Indian stock markets. So far, the benchmark stock indices have corrected by about 30% from their November peaks.

So the obvious question at the moment is whether this is the right time to buy. Marc Faber, the publisher of the widely popular investment newsletter 'The Gloom, Boom & Doom Report" is a 'big picture' guy whose views we respect. Often his views linger around the gloom and turmoil in the world economy. So it takes us by surprise when we read that he finds the Indian stocks attractive, especially after the recent correction.

Of course, he doesn't mean that Indian markets have bottomed. He acknowledges that India is in a bear market and stocks could tumble even further. "But if you're a long-term investor, each time the market drops 40 percent from the peak, you should start buying. You will then have satisfactory returns in the long run. Not huge, but satisfactory returns," he opines.

He puts forth a simple yet robust argument in favour of India. The advantage that we have over say, a developed economy like the US is that we're starting from a very low GDP per capita. Hence, it is relatively easier to grow from a per capita GDP of US$ 1,200 to US$ 5,000 for India; while US which has per capita GDP of US$ 40,000 has lesser room for real growth.

We very much agree with his views. Though the ill-effects of inflation and resultant high interest rates will weigh over growth and profitability in the short to medium term, the long term prospects of India are indeed quite promising. So this is indeed a good time for value investors to set out hunting for fundamentally sound stocks at bargain prices. Remember to be greedy when others are irrationally panic-stricken and fearful.

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 Chart of the day
We're living in a time when the greatest threat engulfing the global economy is that of sovereign debt defaults, especially in the developed economies. As pointed out by a leading financial daily, there have been 13 sovereign debt defaults in the last 13 years. Today's chart of the day shows the 5 of those major sovereign defaults. With the European debt crisis growing worse with each passing day, we could soon have Greece on the list as well.

Data source: The Economic Times

It is said that history may not repeat itself but it certainly rhymes. The truthfulness of this statement would be hitting the Greece policymakers the hardest perhaps currently. History connoisseurs would do well to note that the world's first ever sovereign default came in around 4th century BC with Greece being its epicentre. Now, twenty four centuries later, a default has come knocking on its door yet again. To put it in less metaphorical terms, Greece has come on the edge of its biggest sovereign default in more than two thousand years. Unlike the first time though, the current default, should it happen, could send shockwaves around the world and also precipitate into a crisis that could make Lehman Brothers look like a dwarf. And the risk does not come from the fact that the rest of the world owns of a lot of Greek debt. But rather from the fear and a loss of confidence that a Greek default would lead to. What makes matters worse is the inability of the authorities to put an exact number to the wealth that could be destroyed. At best, what they can hope is for the contagion to remain under control. But hoping for the best would mean addressing just part of the problem. They will also have to take into account a worst case scenario.

In the meltdown of the last few days, there have been more and more takers for the US dollar. This is despite the fact that the economic conditions in the US have hardly improved and its credit rating has been downgraded. This is because the Eurozone has been faring much worse. Countries such as Greece are in such dire straits that the Euro is no longer being favoured by investors and thus in relative terms, the dollar has been perceived as a safe haven. All of this has not boded well for the rupee which breached the Rs 50/US$ mark, making it the second biggest fall in history.

The positive is that exporters will stand to benefit as they will earn more rupees per dollar. But there are downsides as well. For starters, oil imports will become costlier and in a scenario where inflation is already high and fuel prices have been hiked, this does not augur well for the Indian economy. Of course, the RBI has amassed forex reserves of a sizeable amount. But this has mostly been the result of buying dollars brought in by portfolio investors and in some sense could become a liability if these investors choose to exit. So far, whatever intervention has been there by the central bank has not been enough to stem the slide of the rupee. And thus, volatility in the Indian currency unit for the next few months cannot be ruled out.

The global commodities that at one point of time were showing relentless price rise have now been subjected to a brake. The downside risks to the global economy and resulting fear of a slowdown in demand for metals, fuel and food have plunged the commodity prices to nine month low levels. Oil and Gold have not been spared either.

We view this as a correction phase for commodity prices from their unreasonably high levels sometime back. However, the Indian corporate won't be able to cash in the full benefits of the same. The rupee has depreciated to hit an annual low versus dollar - the currency in which most of the key commodities are denominated. Hence, even while global quotes for key commodities come down, the benefit will be nullified as we will have to shell out more rupees per dollar.

Indian investors would agree that they would have made enormous gains had they held stocks longer during the bull phase between 2003 and 2007 when the markets went up 500%. But it's difficult for many a people to watch stock prices rising and to do nothing at all. As a result, bull markets breed speculators and bear markets breed long term investors. An interesting Morgan Stanley report points out this fact with figures.

According to the report, the average holding period between 2003 and 2007 was about 20 months. The holding period rose steadily since mid-2003, but after the markets crashed in 2008-09, the holding period shot up at a higher pace and now stands at about 35 months. It would be also worth mentioning that the holding period of foreign institutional investors (FIIs) now stands at 22 months, which is the highest level since 2004. One of the reasons for the increase in the holding period in the equity cash segment is that a major chunk of speculative activity has shifted to the derivatives markets. The fact that cash market turnover is less than 10% of the derivatives market turnover is testimony to that.

The world markets experienced heavy sell off this week on US Fed's statement about a gloomy US economy and chances of a slowdown in China. In a recent Federal Open Market Committee (FOMC) meet, yet another stimulus package "Operation Twist" was announced citing the economic troubles in the economy. But there is a significant difference this time. Instead of increasing the money supply like in previous plans, the focus is now on lowering long term borrowing costs and reviving the housing market. This, Fed plans to achieve through a bond-buying program. It would replace short term treasury bonds worth US$ 400 bn with longer dated debt.

Indian stock markets were affected by both the gloomy outlook of the US economy as well as the depreciating rupee. The markets were down by 4.6% this week. The week also witnessed highest one day dip (down by 704 points) in Sensex after July 6, 2009. Fed's announcement resulted in the other world markets crashing this week. The worst sufferer was Hong Kong (down by 9.2%) followed by France (down by 7.3%) and Brazil (down by 7%).

 Weekend investing mantra
"The trouble with institutional investors is that their performance is usually measured relative to their peer group and not by an absolute yardstick. This makes them trend followers by definition." - George Soros

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12 Responses to "Is this a good time to buy Indian stocks?"


Oct 7, 2011




Oct 6, 2011

consider how much u r invested out of your total capacity. suppose u r 50% invested and u have spare 50% left u could put another 10-15%. but if u have already invested more than 70% of your total equity investment capacity, u should wait as the sensex could go to 12500-13000 levels. dont expect the markets to cross 21000 level for another 30-36 months.



Sep 26, 2011

The best time to invest is when you have the money to do so. Opportunities are always available, if you know how to look for them. An asset allocation plan will help to decide in which asset to invest in.



Sep 25, 2011

Not the right time at all. coz our markets are concerned MORE about US & Europian Mkts !!!

An extreemly DANGEROUS phase we all are in.

The market ( NSE) may shed another 6 to 800 pts.

One should not be amused if it touches 3000 mark also.....

Shocking isnt ???


Countries have vested and conflicting interests and hence a consensus is unlikely to be reached at by all..

PRAYERS are the only answer; at least for the ones who believe in the almighty :):):)


shome suvra

Sep 25, 2011

Valuations may be attractive in terms of forward earnings which can prompt long term investors to buy stocks.Bottom fishing is risky if market falls further as the effect of global trends. As the sectors are positively correlated defensive s can emanate some hope.


bhaskar bandarkar

Sep 25, 2011

This kind of opportunity never comes again.

Go and get it this chance.



sandeep jain

Sep 24, 2011

yes it is a good time to buy stocks. i personally feel that nifty could touch 5500 levels in next series(oct).



Sep 24, 2011

best time in investing in debt based instruments.



Sep 24, 2011

India is in a 10 year secular bull market which
will last up to 2018. Geopolitical issue will halt
the rally temporarily

when we look at the market at the current levels, especially if you look
at the levels that it was at even a week or 10 days back, we think
this is a very attractive level for a long-term investor to get into
but then there are two forces in play very clearly.

You find India in a situation where we seem to be virtually at the
fag end of the rate hike cycle and probably things will only get better
from thereon, maybe another 50 bps and probably that's it is what it looks
like to us at this point in time.

crude gradually coming down and commodity prices of course being
fairly resilient but still decidedly on the way downwards, so these are
all good news for Indian economy.

If we are going to come out of all this, with our growth practically
intact at about 7.5-8%, So my senseis if you are a long-term investor,
if you have horizon of at least a year, then stay with the market.



Sep 24, 2011

There are many such opportunities that can give extremly good returns
over time for value investors. Investors who have a long-term horizon
(one to two years) can start bottom fishing in this market in stock-
specific opportunities in a phased manner. This approach can yield huge
dividends over time ,and price appreciation in stock prices

We believe the rate cycle is close to the peak, therefore we are
positive on the market. more upside for India in the next
6-12 months.

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