Indian Stock Market!!!
Is the Sensex a true reflector of the state of the Indian Economy? Is the Indian Economy really doing so well? Is the rise from 14K to 20K in no ime based on fundamentals? Should I invest now or have I already left it too late? These are some of the few questions that are on everybody's mind including mine.
Over the past few weeks I have been reading a lot of articles on the meteoric rise of the Sensex and how it shows that a Indian economy is really doing well and based on fundamental growth. I have been listening and reading statements from the FM that the Indian economy is strong. But is this really the case? After all it may not be!!!
If you look carefully at the boom of the stock markets most of the inflow of money was through FII's. Money was invested mainly through P-Notes. The fundamental question that one would ask then is "How long are the FII's going to invest? What si the source of the money invested through the P-Notes?" Well, both the above questions are very difficult to answer simply because nobody knows the mentality of the FII's who one day invest and the nest they pull out. About the source of the money flowing in through P-Notes, this also cannot be answered because the very nature of this instrument if such that the source cannot be traced back. There has been a long debate going on (i think for the past 5-6years) about the usage of P-Notes. A couple of weeks back the SEBI had issued a statement that they will regulate the flow of money through P-notes and the FII's hwould be registered. The next day the stock markets carshed by about 1700 points within a couple of minutes of trading and the markets had to be closed. Since then the stance of SEBI on P-Notes has weakened and they still continue to be a source of inflow of money into the markets.
The GDP of India was earlier in the year said to touch double digits for the first time thanks to the numbers shown by various sectors. But, as the year went on the GDP kept getting revised and it now stands somewhere in the range of 9 - 9.3%. If we check on the IIP (the industrial index for production) all the sectors have shown lesser growth compared to last year. Infact this is seen for both the period April to September. When the figures of August came out most of the analysts said that this was just a one-off case and should not be taken seriously. But we are seeing similar if not worse figures for September as well. The growth rate has nearlly halved when compared to the previous fiscal. So, if the case is that all the sectors are doing badly then what fundamental backing are we talking about? If the economy is really doing well then why GDP keeps getting revised to lower numbers? Why do we keep reading articles of economic slow down?
This brings us back to the fundamental question: Is the Sensex a true reflection of the Indian economy? My take on this is that till the levels of about 14K it was but post this mark the Sensex is not a true reflector of the state of the Indian economy.
Should we invest at this time? Should we sell our shares and make the profit?
My take on the second question is: "Make hay when the sun shines" If you are making profit then sell and make the money.
Should you invest now? You can invest in the markets but don’t expect huge returns, basically don't be greedy. Don't expect big returns in short time. Invest in stocks which have a fundamental backing. Do your research before investing. Don't worry if the stock is not very highly valuated at this current time. Look at the business the company is in and the figures it has shown.
Invest with a long - term perspective and invest in fundamental stocks!!!
P.S: You may feel that this post is not complete in terms of it not being very comprehensive and without statistics. I am sure you will get these numbers in many articles. But I just wanted to highlight some of the points which I am researching / reading on and you can do the same.
Over the past few weeks I have been reading a lot of articles on the meteoric rise of the Sensex and how it shows that a Indian economy is really doing well and based on fundamental growth. I have been listening and reading statements from the FM that the Indian economy is strong. But is this really the case? After all it may not be!!!
If you look carefully at the boom of the stock markets most of the inflow of money was through FII's. Money was invested mainly through P-Notes. The fundamental question that one would ask then is "How long are the FII's going to invest? What si the source of the money invested through the P-Notes?" Well, both the above questions are very difficult to answer simply because nobody knows the mentality of the FII's who one day invest and the nest they pull out. About the source of the money flowing in through P-Notes, this also cannot be answered because the very nature of this instrument if such that the source cannot be traced back. There has been a long debate going on (i think for the past 5-6years) about the usage of P-Notes. A couple of weeks back the SEBI had issued a statement that they will regulate the flow of money through P-notes and the FII's hwould be registered. The next day the stock markets carshed by about 1700 points within a couple of minutes of trading and the markets had to be closed. Since then the stance of SEBI on P-Notes has weakened and they still continue to be a source of inflow of money into the markets.
The GDP of India was earlier in the year said to touch double digits for the first time thanks to the numbers shown by various sectors. But, as the year went on the GDP kept getting revised and it now stands somewhere in the range of 9 - 9.3%. If we check on the IIP (the industrial index for production) all the sectors have shown lesser growth compared to last year. Infact this is seen for both the period April to September. When the figures of August came out most of the analysts said that this was just a one-off case and should not be taken seriously. But we are seeing similar if not worse figures for September as well. The growth rate has nearlly halved when compared to the previous fiscal. So, if the case is that all the sectors are doing badly then what fundamental backing are we talking about? If the economy is really doing well then why GDP keeps getting revised to lower numbers? Why do we keep reading articles of economic slow down?
This brings us back to the fundamental question: Is the Sensex a true reflection of the Indian economy? My take on this is that till the levels of about 14K it was but post this mark the Sensex is not a true reflector of the state of the Indian economy.
Should we invest at this time? Should we sell our shares and make the profit?
My take on the second question is: "Make hay when the sun shines" If you are making profit then sell and make the money.
Should you invest now? You can invest in the markets but don’t expect huge returns, basically don't be greedy. Don't expect big returns in short time. Invest in stocks which have a fundamental backing. Do your research before investing. Don't worry if the stock is not very highly valuated at this current time. Look at the business the company is in and the figures it has shown.
Invest with a long - term perspective and invest in fundamental stocks!!!
P.S: You may feel that this post is not complete in terms of it not being very comprehensive and without statistics. I am sure you will get these numbers in many articles. But I just wanted to highlight some of the points which I am researching / reading on and you can do the same.
posted by GRAM at 10:55 AM
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