• AUGUST 27, 2007

Is this 'the' buying opportunity?

After the earlier week's (ended August 17) pressure on the back of a global liquidity crunch, the major world stock market indices recovered during the previous week (ended August 24). This recovery was largely led by assurance from the US Federal Reserve that it would stand by the financial system in turbulent times, even if it were to relegate its long standing monetary policy stance to the backseat.

This is what the Fed did when it eased its lending rate so as to soothe nerves of the financial system, which eventually led to cheers among market participants. However, will this move contain the crisis (which started off as a mess in the US subprime market) or is it one that delays the overall (negative) impact by a few more days? Only time will stand to tell the tale.

As far as the Indian markets were concerned, the overall recovery was tempered by the domestic political factors. The fate of the UPA government in its confrontation with the Left parties over the Indo-US civil nuclear agreement ruled the roost. The benchmark BSE-Sensex however, managed to scrape through the week with gains of nearly 2%. The Foreign Institutional Investors (FIIs), however, remained net sellers. As a matter of fact, after buying in a net of US$ 6 bn during the month of July 2007 alone, the FIIs have turned net sellers during the current month, with the total net outflow touching US$ 2.2 bn by the end of the previous week.

Liquidity problems at home and political concerns in India have seemingly kept the foreigners at bay. Domestic mutual funds, under pressure to invest the funds collected in the recent NFOs (new fund offers), have thus been the savior for the markets, as they bought in stocks worth US$ 400 m during the previous week.

With the domestic political situation remaining jittery, as also with the liquidity tap being turned off to a great extent, courtesy the recent sub-prime meltdown, risks seem to have increased for investors in stocks. However, the situation also provides yet another chance for long-term investors to add on to their portfolio - stocks, which have corrected as part of the overall meltdown and which now trade at relatively reasonable valuations from a 3 to 5 years perspective. However, it is pertinent for investors to know what they are doing rather than plainly seeking the current situation as 'the' buying opportunity they had been waiting for.

"Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it." - Warren Buffett

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