India is attractively placed compared to many other markets
Indian Equity markets falls more than 3%
Today morning whoever has been following the stock markets would have got a shocker with the Indian markets falling more than 3%. In absolute terms, the Sensex is down 1000 points and Nifty is down 300 points as I write this.
What is causing this fall?
Chinese Currency Devaluation over the last and Chinese growth worries are the main culprit. Chinese Yuan has seen an devaluation of more than 3% in the last 1 week. Chinese economy has been in deeper trouble than what the world was thinking about it. The growth momentum has tapered off and Chinese government has been doing all kinds of things like devaluing the currency, artificially propping up the Chinese stock markets, placing exit restrictions for investors, massive infrastructure spending etc., Naturally, Chinese stock markets have been going through roller-coaster rides for the last couple of months.
So, as a reaction to the “cold” China has contracted, the world markets are “sneezing” today.
As investors, what we need to understand is, these kind of reactions in stock markets are a common phenomenon. There has been more than 55 instances where the Indian markets have corrected more than 4% in a single day since 2000. So, this is not the first time the Indian markets have fallen and neither its going to be the last time.
As we invest in Indian markets and stocks, we need to understand how India is placed compared to different countries. I would bet my money on India than anything other country at this stage, due to the following reasons:
1. Falling commodity prices are good for India. We are net importer of commodities (particularly crude oil, coal etc.,) and falling prices will help us to reduce the import bill and there by improve the fiscal condition. Crude oil is quoting below USD50 a barrel now.
2. Thanks to competitive devaluation of Indian rupee against Chinese Yuan, we are around 66.48 against a dollar as I write now. This devaluation would help the Indian exporters. This would help India IT, Pharma and other export oriented sectors like Textiles, Leather, Tea etc., to gain bigger global market share. This market share gain can help in improving employment opportunities internally and also for the growth in GDP
3. We are one of the very few countries in the world where we are seeing inflationary situation. Most of the countries across the world are in a deflationary environment. We continue to grow and remain an oasis among the world markets. The current interest rates in India provides opportunities for rate cuts which can also help the economy.
4. Among the Emerging Markets, India is one of the strongest economies and thereby India would garner more flows and allocations to the Emerging Markets. Our foreign exchange reserves are at an all time high thereby providing much needed comfort.
5. There is a wave of domestic money waiting to enter Indian stock markets. Employees Provident Fund Organisation has recently started investing in Indian equities, which goes on to validate that equities are the asset class to be in for the long term wealth creation. Other than EPFO, there is a huge amount of domestic investor money coming in through Insurance and Mutual Funds. These fresh buying would provide the support for the Indian equities in the weeks to come.
The current market fall has more to do with the global developments like China slowdown and the expectation of slowdown of commodity exporting countries (like Saudi Arabia, Indonesia, Brazil, Russia etc.,) owing to fall in commodity prices. India stands to benefit in this scenario and we should use this as an opportunity to increase our equity exposure.
Always remember, we are not investing to make quick returns from equities but to build wealth over the long term and to meet our various financial goals. Therefore, there is nothing to panic and and this sell off in the markets is a good opportunity to buy towards building long term wealth.
If you are doing monthly SIPs, there is absolutely nothing to panic and these lower prices would help you to get better entry prices for this month’s instalment!
If you are waiting on the wings for a better entry opportunity, I think this is one for you!
Stay calm, Stay Invested!