|»5 Minute Wrap Up by Equitymaster|
On This Day - 20 JULY 2009
Hot money is leaving India...but only for now!
In this issue:
Now, here's another FII-related number that might be 'bad news' for punters - the total value of Indian shares held via participatory notes (P-Notes), after touching Rs 1 trillion at the end of May 2009, has declined by around 21% YoY in June 2009. For starters, participatory notes (P-Notes) are instruments used by foreign investors or hedge funds that are not registered with the SEBI to invest in Indian securities. In short, P-Notes remain an 'unidentified' source of foreign money.
And while P-Note holders might be selling their investments in Indian stocks (as data would have us believe), we remain unsure of their motive behind this i.e., moving out of Indian stocks. After all, we have always been unsure about their real motive behind investing in India in the first place.
So, while public data might make us and you believe that the role of P-Notes in FII investments is on a decline (as the above chart also shows), we should not count out a sudden strike that these 'unidentified' source of hot money can have on Indian markets. At least this is what history teaches us.
However, it is important to add that companies that operate in cyclical sectors or are producers of commodities have still not announced their numbers in a big way. Thus, a clearer picture will emerge only when these companies do the needful. For the time being though, the trend indeed appears to be heartening.
Equity as an asset class is holding a lot of allure for the Chinese as they are increasingly looking to increase their exposure to the stockmarkets. Also, state-owned companies are showing a new keenness in coming up with IPOs and ushering in some more private participation. As reported on Bloomberg, at present, China's market is valued at US$ 3.2 trillion as compared to US$ 11.2 trillion in the US. As far as the performance of the indices is concerned, while the S&P 500 has gained 4.1% in 2009, China's Shanghai Composite Index soared 75% this year.
Having said that, what needs to be noted is that with the brouhaha surrounding investments in emerging markets, stocks have run up considerably in China. This means that while China's stock markets may surpass the US in the future, it will definitely not be a smooth road going forward.
Now, she also has the unenviable task of balancing her stance on the outsourcing - an emotive- issue both in India and the US. Although she says that the US will not become more protectionist, it is easier said than done given the public resentment in the US over job losses.
In fact, US President Obama himself speaks out against outsourcing from time to time. We are not surprised. At the end of the day it is politics and not economics that is supreme in a democracy - be it India or America. We must take Clinton's assurances with that in mind.
Other Asian markets also closed strong today, led by gains in Hong Kong (up 3.7%) and China (up 2.4%). Stocks in Europe have also opened the week in the positive.
P.S.: With an aim to serve our audience better, we have initiated a new series directed to women investors. The series is titled - Women's Weekly - and will be a conduit through which we will provide our views and recommendations on how should women go about managing their finances and invest for a better financial future. Click here to read the fifth article of this series.
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