|» INVESTING IN INDIA|
The BSE-30 Index, the one the world watches, is sagging with the weight of the world's problems on its shoulders. Every time the Index tries to achieve some semblance of stability, wham! - it gets hit by some global news flow.
Sample the headlines from Bloomberg on the evening of Wednesday, July 9th: "Stocks in US tumble as S&P Index enters bear market; bank shares slump".
Just in case that headline did not scare away any investor ready to start buying into the US stock markets, here is another one: "Optimism over US stocks falls to 14-year low as Dow enters bear market". Since emotion is (unfortunately) the key driver for investment decisions, the headlines sure do a great job of keeping investors locked up in Dow-proof bunkers.
And for those already invested in the stock and bond markets, the devastating news that "United Capital's Devaney liquidates hedge funds at total loss to investors". The loss, I read, is probably somewhere in the region of USD 600 million (about Rs 2,500 crore). Not a lot, really, if you put it in perspective. The banks and other finance companies have, to date, written down USD 400 billion (yes, billion with a "b"). No one really knows when this will end. Or how many more billions this housing collapse will cost. Some are saying it could be another USD 400 billion. Which means that the total loss will be like writing off the total output of all goods and services generated in India in one year. Imagine all the work done in India in one year is worth nothing. (Even though this Left-led coalition government has not done much this past year, luckily for all of us, India still had some activity.)
But the end of this long dark tunnel is not yet in sight.
Iran is building nuclear capability. Israel wishes to stop it. One third of the oil exports from the Middle East flow through the Straits of Hormuz. If you knock out our nuclear facilities, say the Iranians, we will set fire to the Straits of Hormuz. Not good for oil prices, not good for India.
But while Israel and Iran are threatening to pull triggers, the shots have been fired in India. The government is pushing ahead with the India-US nuclear deal. No one is quite sure what the precise benefit of this deal is, but it sure has created a lot of fire.
So the markets continue to be blown around by global cues and by local events. Some financial, some political, some religious. At the end of the day this changes the environment in which the companies operate. This affects the ability of companies to make profits. This affects their share prices. The Index has a reason to move around and not stay constant - that is true. But the rate of change seems exaggerated. This exaggeration is caused by greed and fear. The fear of seeing the government topple has helped bring the markets down. Yet, maybe it is the best thing that could have happened. Maybe, without the Left to stop it, more reforms will happen under another government. And that means stock markets should be rising, not falling. Maybe.
Having said that, what if the Strait of Hormaz is set on fire. That would be a disaster - not only for stock markets but for how we live on a daily basis. Oil and energy - which we are so dependent on - will be in short supply. And really expensive.
We don't know which person in which part of the world is likely to pull which trigger. Or which central banker is going to fly around in a helicopter to put out the fires. What we do know is that - at all times - it makes sense to keep a portion of your savings aside for investments. And the investments must be in a variety of instruments and assets. For example, this year, the Quantum Liquid Fund has given a return of +4.2% (as of June 30) while the Quantum Long Term Equity Fund has given a loss of (-)31.8%. Gold meanwhile has given a return of +21.3%. Much as many of my peers would have you believe there is no magic to investing. A lot of it is common sense - and a discipline to stick to common sense. But, like they say, the strange thing about "common" sense is that it is most "uncommon".