Of "Asian" flus and global cues... - Views on News from Equitymaster

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Of "Asian" flus and global cues...

Mar 5, 2007

With no "bottom" after the 10% decline over the past fortnight, the Indian markets are at it again down 3.2% as we write! Indian equities are seemingly having a case of the Asian flu: benchmark indices in Japan, Singapore, Malaysia, China and Taiwan have just closed in the red (see graph below). These markets, in turn, are taking the "global" cue from a 1% decline witnessed in the US markets on Friday.Fears of an economic slowdown in the US, China's proposed leash on speculative domestic capital and the realisation that the Indian economy is in an 'overheated' mode, have seemingly shaken investors belief whether the Indian stockmarkets, after a 4-year dream run, are actually a pretty 'risky' place!

A slowing economy....
We shall reiterate what we have been saying with respect to the economy overheating and the hanging sword of rising capital costs globally (and in India). We believe that there is a high probability that the Indian economy will slow down as the RBI is (correctly) determined to keep inflation under control by increasing interest rates and slowing demand.

...does not change our view.
Well, we are not surprised by the attempts by the Reserve Bank of India (RBI) to slow the economy! We continue to believe that the Indian economy will grow at a rate of 7% to 7.5% per annum on a long-term sustainable basis. We continue to believe that earnings of India Inc. will grow at 15% per annum on a long-term sustainable basis. So do not get confused about the noise that will be created over a slower growth rate in the US economy or by the selling of FIIs that may cause the market to decline shaprly (as it did in May June 2006).

Focus on your portfolio, and your ability to take risks
The effect of a slowing economy will vary by sector: capital goods companies will possibly see a slowdown in orders; but technology companies may not be affected. However, the global decline in stock markets may see a further sell-off in Indian share markets. But do not let these near-term swings and "bull" and "bear" markets rattle you. There is a way to be immune to all the noise about the Asian flu and global cues. The smartest and most successful investors in the world tend to ignore such volatility and always invest with a long-term perspective they are never concerned about the daily movements in stock prices

The events of the past week should have given you ample reason to reassess your portfolio exposure. The specific stocks you own (click to read our view on large-cap and mid-cap stocks) or the mutual funds you own (meet a Personalfn representative) must have a risk-return profile that suits your financial goals and your risk-taking ability. Never gamble in stocks and mutual funds, always invest rationally.

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