Crash landing - The Honest Truth By Ajit Dayal
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Investing in India - Honest Truth by Ajit Dayal
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9 JUNE 2008

The Euro Football Cup is underway in Switzerland and Austria. The opening match saw the hosts lose 0 to 1 to the Czech Republic. The streets of Zurich were filled with surly looking people, huddled against the constant drizzle. It looked like a parade for the dead. About 20,000 people walking, but no words to be heard. Just the parading of the boots as it hit the wet, cobble stoned streets. Maybe they were on their way to send emails to FIFA (the world body of the football council, which happens to be headquartered in Zurich) protesting the refereeing.

Maybe a sport that has billions behind it in terms of sponsorships and payments should have recourse to electronic medium that can verify the calls of the referees. Unless, of course, as I was told there could be some crime syndicates involved in ensuring that the game stays subjective and prone to human error. It works better for the odds and the betting mechanism.

Some of the calls did seem a little absurd to me, not that I am a football person, as such, so not really an authority on the sport.

"It was not a good game", said the traffic attendant as he watched his fellow countrymen trudging in silence, "we lost".

A matter of fact, shrug-the-shoulders statement. We lost. No excuses for the bad calls that may have occurred. A country waits for 2 years to host a tournament. They wait for 2 years to see their team win.

All that training by the various team members. All that hard work. And then, poof, a few bad calls and the game is over. One hit in the knee and the captain is sidelined for the entire tournament. Yes, he did cry in frustration as he was taken off the field. I felt sorry for him. He was the innocent victim.

Just like the investors in the Indian stock markets.

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Invest in India's slogans!
Since the year 2003, we have been bombarded with slogans like "India Shining" (the BJP-led NDA coalition). And after they got knocked out (no bad referees in that decision) this present UPA-led government has given us "India Resurgent" and "Incredible India!"

All most Indians really want is a quiet life and a safe place to put their money so that they can build a nice pool of money for their days in retirement - and live more of the quiet life. Actually, that is what most people in the world want.

But those who coined the various terms - across political parties - wanted more. They wanted to hype the India story. And they did. Brand India was being built. "This is the India century", everyone proclaimed, "we cannot be ignored anymore".

So there were the innocent investors putting money into SIPs and mutual funds because they wanted the quiet life.
And then there were the foreign investors who wanted to ride the wave.

Indians wanted a sign that India was, indeed, the toast of the world. And the short term foreign investors with their BSE-30 Index firepower gave us that. Why not? They were looking for a place to invest and we were looking for some action. Our government officials were counting the days it took for the BSE-30 Index to cross every 1,000 points. And because the rally was sharp, the number of days got shorter. The TV channels were blowing horns and waving placards every time the market hit another "high".

The market was gaining ground or, rather, taking off from ground into some sort of stratospheric reach. See, said the ministers, we are doing the correct thing. The market is rising. Foreign investors are rushing into the markets.

Well, the music has stopped. The TV channels are no longer waving those placards as the market loses 1,000 points marking the downward drift in share prices. The foreign investors - who sneaked in via the misguided back-door P-Note policy - are rushing out. Their India story is over. They will come back some other time when they feel like it. Maybe this year. Maybe the next.

And what about the rest of us trying to invest in India and build up our savings for the day when we retire? Well, we get to buy stocks really cheap.

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Buy.
Why do you want stocks to go up, said the genius Warren Buffet? If you want to sell them then, yes, you do want them to increase in price, he noted. But if you are saving money and still investing - why would you want the share prices to go up? You would, he argued very logically, be happy to see them decline in value so that you can buy more stocks for the same amount of money.

So, unlike the football game there is no "whistle" in this game to announce the end of the game. You blow the whistle when you want - and in the meantime, you get to kick the ball around, run around the field and enjoy the game. You blow the whistle when you are retiring. And if you ready to retire in the next one or two years and need to start taking cash out of the market then, yes, the decline in the Indian stock markets is a problem. But most of us are not in that time frame of the penalty zone years. We have many years for retirement.

What if I told you that the fair value of the NSE-50 Index was, say, a level of 7,500 by June 2009. That is one year from now.
And you had a chance to buy this Index at 5,000 in January 2008? If you did, that could be a potential return of 50% in 18 months (the increase of 2,500 points from January 2008 and June 2009).
Now I come back and tell you that this same basket is available at 4,000 today and the fair value should still be the 7,500 in one year (that is a gain of 3,500 points or 87.5% in 12 months).
If you did buy some in January 2008 you are already losing 20%.
But that should not worry you - you are still saving.
You don't need the money to pay your bills for now.
You need the money five, ten, fifteen years in the future.

Now what should you be doing?
Worrying like the people who coined up all those slogans as a "feel good" factor?
Worrying like the punters and short term foreign investors?
Or just being patient and logical and buying into any "crash landing"?
We don't know where the NSE-50 Index will be in the next few years. But, whether India is "shining" or "incredible" or just plain "dull" we think the chances are that the Indian economy will be a little stronger than where we stand today. And strong economies, over long periods of time, should translate into better stock markets.

Watch a lot of Discovery Channel, History Channel, and the old classic movies. Keep your blood pressure down and stop reading the stock market articles in newspapers. Stop watching interviews with any stock market experts. Save your money by staying more at home. And invest those savings. The Swiss may have lost the football game which has a finite time period - but they are pretty astute when it comes to investing for the long haul.

Suggested allocation in Quantum Mutual Funds
Quantum Long Term Equity Fund Quantum Gold Fund Quantum Liquid Fund
Why you should own it: An investment for the future and an opportunity to profit from the long term economic growth in India A hedge against a global financial crisis and an "insurance" for your portfolio Cash in hand for any emergency uses but should get better returns than a savings account in a bank
Suggested allocation 80% 15% 5%

Disclaimer: Past performance may or may not be sustained in the future. Mutual Fund investments are subject to market risks, fluctuation in NAV's and uncertainty of dividend distributions. Please read offer documents of the relevant schemes carefully before making any investments. Click here for the detailed risk factors and statutory information"

Note: Ajit Dayal, the author is a Director in Quantum Information Services Private Limited and Quantum Asset Management Company Private Limited. Views expressed in this article are entirely those of the author and may not be regarded as views of the Quantum Mutual Fund or Quantum Asset Management Company Private Limited or Quantum Information Services Private Limited.

Mutual Fund Investments are subject to market risks. Please read the offer documents of the respective schemes before making any investments.


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