Published on September 19, 2013
Demystifying gains Long term investmentStocks
Market Trend - 2013 • The year 2013 started on a positive note for the Indian equity markets • Market analysis and research pointed to a possible bull run in 2013 with increased liquidity and supportive valuations • The reasons for such positive outlook at that time were many - Long awaited Government reform, FDI in retail, low interest rates etc. • In June 2013, however, the situation was extremely different.
Current Scenario • Ironically, while the projected upswing at the start of the year was attributed to domestic factors, the current downswing is a cumulation of several global factors directly affecting market performance • The current bear run in the Indian Equity markets is range bound and dependent on several global cues which have in turn been somewhat positive, but largely negative in nature
Global Scenario • Notable global cues such as the easing of the cash crunch in China or the increase in the German consumer index, have contributed to a positive bias in the current scenario • However, the recent announcement by the US Federal Reserve on the gradual withdrawal of the Qualitative Easing Stimulus given possible stability in the US markets and unemployment data, has led to markets worldwide being pressured and trending towards a downswing
US Economy & FIIs • What the announcement meant was that the US economy is showing positive signs of recovery and hence may not need requisite Government aid • However, the news impacted all emerging markets such as India and Brazil as post the announcement, FII's have started consolidating their positions, resulting in a massive selling spree that has impacted liquidity in the equity landscape
Impact of FIIs • With the withdrawal likely to start over the next few months, global markets have turned distinctly weak and India has been no exception • With FIIs turning into net sellers over the past few days, the move has dented market sentiments • FII flows have been further impacted by the falling Rupee, given global cues given weak trade deficit numbers and lackluster corporate earnings performance
Is there a silver lining? • Actually yes. Historical data shows that the Indian markets have been extremely resilient to global cues and domestic factors including political instability, recession etc and have, as an average, offered better returns on investment • The current downtrend of the Indian markets have made stocks extremely attractive for long term investors
Goods News • The good news is that the Indian growth story still holds promise and value in the long term and we do see FII flows returning into India soon • The falling rupee has also boosted the corporate earning of few sectoral stocks and the impact of that will also be seen in the medium to long term
Market Speculation • All in all, while in the short term, the markets will continue being uncertain with more expected corrections until there is clarity and strengthening of global cues, the medium - long term outlook is extremely positive as current stock prices have corrected their valuations and are trading at an all time low making them lucrative for investors to buy quality stocks and hold on to until further market recovery
Our recommendation • Use this time to do research and buy specific stocks, especially large cap or blue chip stocks at corrected prices and hold on to it with a 1 - 2 year investment horizon in order to receive better returns on your investment and create wealth
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