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What will reverse QE mean for markets?
Thu, 16 Jul Pre-Open

Interest rates, not just in India, but even in US have had a significant influence on market sentiments. Now that Fed has indicated that a rate hike may happen later this year, one should not be surprised to see markets being fussy about it. There is going to be no dearth of warnings by the media and analysts regarding such developments. But as investors, do you need to worry about these macro economic trends?.

One of the reasons why Fed rate hike matters is significant foreign money invested in the Indian and other emerging markets. If Fed rate goes up, much of this money may flow out of Indian stock markets leading to huge volatility in the short term. But is there anything that you can do about it? Or other macro factors that may influence market sentiments in the short term?

The obvious answer is 'no'. However, the good news is that if you are a long term investor, you need not even bother about such trends. What you need to focus on instead is analyzing the fundamentals of the companies you consider investing in, and see if they are valued attractively enough to offer gains in the future.

In the long term, it is the company specific parameters - such as growth in earnings, quality of earnings , management etc that determine the valuations of a stock. Within the same economy and across similar economic cycles, these are parameters that differentiate winners from losers.

Does this make such macro events entirely irrelevant for long term value investors then? To certain extent, the answer is yes. As long as one has invested in stocks of companies with robust business models and efficient management and is patient enough for valuations to catch fundamentals, one can afford to shut this noise . However, at times, such negatively perceived events offer much awaited opportunity to invest in strong stocks at attractive valuations. And to that extent, one can allow these events to influence investing decisions.

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Feb 23, 2018 (Close)