|»5 Minute Wrap Up by Equitymaster|
On This Day - 16 MARCH 2010
Are you holding cash or investing in stocks currently?
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As for the Indian markets, after a strong bull market of last year, it is fine to expect investors here to hold cash and wait for a sharp correction in stock prices. You might be doing that as well! And especially now, when concerns over global economic recovery continue to cloud investor sentiments.
Everyone fears corrections. But we at Equitymaster believe that after the sharp rise in stock prices we saw in 2009, a correction this year should be expected. As such, investors must hold on to a part of their cash holdings if they have set their eyes on some valuable companies that are not available cheap as of now.
But then, if you can find some wonderful long term opportunities trading at attractive valuations even in a volatile market like this, nothing should stop you to go ahead and act i.e., use a part of your cash to buy those stocks rather than wait for a correction.
But memories in the realty space are short lived indeed. As per a DNA Money report, the market is back near the peak prices of 2007, especially in some regions like Mumbai. Also, realty companies have within a span of just a year gone from 'affordable housing' back to 'high-end' and 'premium' projects. The report states that developers such as Unitech, DLF, Orbit Corp, Lodha Group, DB Realty, Kumar Builders, and IndiaBulls Real Estate have either launched or are launching projects in the Worli and Parel areas of Mumbai with prices in the range of Rs 13,000 to Rs 30,000 per square feet. Seems like buyers will find themselves left in the lurch once again!
Stephen Schwarzman, the co-founder of Blackstone is reported as saying, "...the prospects here are extremely good. I really like India." His rationale is quite simple. With India growing at a pace of 7-8% every year, all businesses are bound to grow. As per Schwarzman, what Blackstone is really assessing is the management quality, uniqueness of the company and its overall competitive advantage.
These, we believe are factors that even you must consider while looking at companies for investing. There are many Indian companies that are growing at exponential rates. But at the same time, the management integrity of most of them is questionable.
Furthermore, a weaker dollar will also make the US exports more competitive and will aid the economy in coming out of the recession faster. Thus, the prospect of a weaker dollar will actually turn out to be a boon in disguise for the US economy, feels Krugman.
So far, so good we should say. But what if the transition is not that smooth? What if investors start asking for significantly higher rates in view of a weakening dollar? It could certainly send the long term rates higher and threaten the recovery process. The US, we believe will have to tread very carefully here and may not want to impose very strict measures overnight on Chinese imports.
So it comes as a surprise when Volcker opines that it is not the right time to withdraw stimulus measures. It may be noted that several observers have pointed out that the unprecedented injection of liquidity in the US economy will lead to massive side effects. Hence, the stimulus measures should be withdrawn sooner rather than later. But Volcker says, "This is not the time to take aggressive tightening action, either fiscally or monetary-wise."
We believe it is the high unemployment number that is prompting him to say that. But the measures will have to be rolled back sooner or later.
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