Is this your reason to buy stocks? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Is this your reason to buy stocks?

Dec 14, 2009

As we approach year-end, it would be helpful to share a quick recap of 2009. Global stock markets, gold, oil, hard commodities - you name it and it rose in value during the year. Emerging markets were clearly the outperformers though. Stock indices of China and India for instance rose by around 78% each.

Note: Country names are representative of their benchmark stock market indices
Data Source: Yahoo Finance, CNNfn, Kitco

We believe that the main driver of 2009 rally across asset classes (except gold) were low US interest rates. Gold prices rose primarily due to fear of the events that such low rates can unfold in the future (like high inflation). Set around a year ago at near-zero level, these rates forced flow of liquidity into emerging market assets, including Indian stocks.

As of date, foreign inflows into Indian stocks have already totaled US$ 16 bn this year. And with interest rates in the US expected to remain low (as has been talked about by the Fed) for an extended period of time, the flow of foreign money is likely to continue into 2010 as well.

So, could that be one big reason to buy stocks into the new year?

We believe, no!

Foreign investors are notoriously unpredictable. They were the same set of investors who dumped assets in the emerging markets in 2008 to move into the safety of US bonds. And now with risk coming back on the table, as money has become cheap, it is this very set of investors that are firing up stocks across emerging markets like India.

We can't yet term 2009 FII inflows as a pointer to some kind of bubble building up in Indian markers. But what these have definitely done is taken stocks' valuations to uncomfortably high levels. When we look around for some very good businesses in India, we find their stocks are now trading at rich valuations.

This is what disturbs us. Especially when we know that the large but unpredictable foreign investors have the power to pull the carpet under our feet. Anyways, when that happens, those with the stomach to look for bargains may have a field day. But the vast majority of retail investors might get severely burnt. After all, this is what happened last year as well!

So the big idea for you is to not go by what the foreign investors are doing. Rely on your own understanding of businesses you invest in, and be there for the long term.

Equitymaster requests your view! Post a comment on "Is this your reason to buy stocks?". Click here!


More Views on News

ITI Mid-Cap Fund: Investing in Potential Midcap Companies for Growth (Outside View)

Feb 26, 2021

PersonalFN analyses the features of ITI Mid-Cap Fund and explains the potential this fund has to offer to its investors.

NSE Glitch: Why Did the Market Go Up? (Fast Profits Daily)

Feb 26, 2021

In today's video, I'll discuss why thew stock market went up on Wednesday, 24 February 2021, when the NSE had to shut trading due to a technical glitch.

My Personal Checklist for Your Trading Success (Profit Hunter)

Feb 26, 2021

You my personal trading checklist and you will be well on your way to making it big as a trader.

Make Rs 5,000 Per Day Trading the Market (Fast Profits Daily)

Feb 25, 2021

In this video, I'll show you how to get started on the path to daily trading profits.

Refresh Your Investment Portfolio in 2021 to Align with Your Financial Goals (Outside View)

Feb 25, 2021

Timely review of your investment portfolio is the key, to enable stable returns and work towards your envisioned financial goals during various market phases.

More Views on News

Most Popular

It's the Beginning of a New Bull Phase in Smallcaps (Profit Hunter)

Feb 24, 2021

Last time the smallcap index crossed 19k a big correction followed. Here's what makes it different this time.

Intraday Trading for a Living (Fast Profits Daily)

Feb 15, 2021

In this video, I'll cover your queries on intraday trading and also share my view on how to decide stop losses and target prices.

Top 5 Stocks Mutual Funds Bought and Sold in January 2021 (Sector Info)

Feb 16, 2021

A look at what India's top equity mutual funds bought and sold in January 2021.

I Would Recommend this Small-cap Stock Over Tesla (Profit Hunter)

Feb 16, 2021

Do you enjoy reading Tesla and Bitcoin stories? Here's a not so famous small-cap stock to profit from the rise of EVs.


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms


Feb 26, 2021 (Close)