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Two major events took most of the headlines yesterday.
One was the outcome of Bank of Japan's (BOJ) monetary policy meeting. The BOJ left its monetary policy steady. The central bank continued with its negative interest rates policy (NIRP) and maintained interest rates at -0.1%. Further, it maintained its base money target at 80 trillion yen.
For second, the US Federal Reserve kept its benchmark rates untouched in its two-day policy meet ended Wednesday. One shall note that last month, the US Fed not only left the rates untouched but also signalled that it would expect to raise its benchmark rate just twice this year. This was against the four interest rate hikes this year the Fed predicted earlier.
The above announcements sparked volatility in global markets. Stock markets in Japan plummeted and took other Asian markets in the red as well. In currency markets, the yen witnessed most of the buying interest while dollar lost its shine.
And there are also some practicalities to be seen in the coming days on the back of these developments.
There may be seen a flight of capital from Japan and the US. As India is seen relatively less vulnerable to the global slowdown compared to other economies, some of these funds could land in domestic markets.
The Fed's stance on keeping its interest rates unchanged has led to a rise in crude oil prices. The commodity has surged to its 2016 peaks this week. The momentum has provided relief to the ongoing volatility in crude oil prices. And the effect of this would be seen in domestic oil companies too. Tanushree Banerjee, Equitymaster co-head of research, has highlighted the impact of crude on domestic oil and gas stocks in the latest edition of The Equitymaster Research Digest (subscription required).
Further, the move by the Fed has weighed on the dollar. This has led to a rally in safe-haven assets. Gold has surged for the third straight day this week. Further, metals have moved higher and the uptrend has led metal stocks inch northwards. Also, the rupee is seen appreciating.
However, for investors it all boils down to one important question. Should there be a marked change in the way an investor should go about investing depending on the above outcomes?
Well, we don't really think so. You see, making macroeconomic projections and getting the big picture right is one thing. However, do really translate them into profitable stock picking decisions is a different ball game altogether. One shall note that macroeconomic events are barely a blip in the long term intrinsic value of stocks. As Buffett has said, "The cemetery for seers has a huge section set aside for macro forecasters. We have in fact made few macro forecasts at Berkshire, and we have seldom seen others make them with sustained success."
But this is not understood by those who often over-react to such events. Even though these events are a short term exercise - which can be reversed in a matter of time - such people tend to spend a fair amount of time and base their investment decisions on the same.
As far as the research team at Equitymaster is concerned, no single economic event can be the reason for making dramatic changes to our investing style. And so we continue to re-iterate our stance of investing in good quality companies that have solid businesses and are available at reasonable valuations that can add to the long term wealth of shareholders.
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