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Cash at a near two decade high - Views on News from Equitymaster
 
 
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  • Dec 30, 2008

    Cash at a near two decade high

    How would you react if you encounter a situation where the cash or available on demand money in an economy's banking system enables it to buy every 3 out of 4 companies trading on that economy's stock exchanges? Mouthwatering isn't it? Well, the economy we are talking about is not your 'run of the mill' economy but is in fact, the world's largest economy. As per Bloomberg, not since 1990 there has been a better ratio of money parked as cash, bank deposits and money market funds to the market value of US companies. To some of the expert investors, this is an indication that the bottom may have reached and the US stock markets are ripe for a rebound in 2009. Giving historical evidence, they point to the fact that on eight previous occasions the ratio rose to a high, S&P 500, the US benchmark rose an average 24% in six months. While a similar study has not been carried out in India, we believe the ratio, if not at a two decade high like in the US, is definitely one of the most attractive in recent years. Like the US markets, the Indian benchmark too has seen investors exit in drove, busting the 'decoupling' myth. But now that the US markets are believed to rebound in 2009, a similar fate could also await its Indian counterpart.

    Stock Exchange anyone?
    If you can't beat it, build it. That's the mantra Reliance ADAG group seems to be following. As per a leading business daily, and Financial Technologies India (FTIL) plan to set up stock exchanges of their own. They believe that there in enormous potential in the field given that barely 5% of Indian households participate in stocks as against 50% worldwide.

    Currently, the NSE virtually dominates the equity derivates segment, with the BSE a distant second. It indicates that there is scope for more players. Reliance Money and FTIL have not confirmed the development but do not rule out the possibility either. If and when these companies decide to go ahead, they will have to cross regulatory hurdles from the Reserve Bank Of India (RBI) and Security And Exchange Board Of Indian (SEBI). As such, the track records of the companies will come into play.

     

     

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