A Good Time to Invest

I am not an expert in stock markets. So this article is not for the professional traders.This is for those who are confused about investing in equities(stocks). Now, if you have any doubts regarding anything i am about to explain, please leave a comment, I will be happy to help you.

You may be hearing the news that the sensex (Bombay Stock Exchange) has crashed and the investors have lost crores of rupees.This basically means everybody is selling out the stocks they have and nobody wants to buy it. So the stocks are quite cheap now. Whys is that nobody wanting the stocks? And why am I still insisting you to invest in Indian equities? For you to understand both, let me first explain the reason why the Indian stock markets are currently looking so gloomy. And then why would the stocks would rally up soon.

What made the sensex go down. here are the reasons;

1. The Euro zone crisis : last year credit rating agencies downgraded the the credit ratings of the peripheral European nations or the PIGS( Portugal, Italy, Greece, Spain). This means that the probability of a default of the sovereign debts of these nations are higher. If that happens many major banks of Europe would fail and the the entire financial system of Europe and world would be shattered. The European Union will seize to exist and Europe will slip into a long recession. So naturally If you were an investor in stock market, you would have thought of taking your money off before the disaster happens.

             If the Europe slips into a recession the euro will loose its value. So everyone started trading their savings in euros to dollars. So the demand for dollar increased and the dollar appreciated.

While within India higher inflation made the rupee weak. This coupled with dollars appreciation caused the rupee to fall around 20% against the dollar. that is 1 dollar was 44.5Rs in December 2010 and at the same period in 2011,a dollar was near 54 rupees. This will have a negative effect on companies which have borrowed in dollars or companies associated with internationally trading  commodities like oil,steal,etc

Inflation in India and RBI`s rate hikes: I think last year we people in India heavily criticized the government for high inflation, especially the food. Since its the duty of the government to bring down inflation and save the common man from the burden, the Reserve Bank of India(RBI) responded by increasing the lending rates 13 times consecutively. This means that now its difficult for companies and individuals to borrow capital, and this will reduce the amount of money in circulation and would bring down inflation considerably. But the problem with this method is that the economy will slowdown. Since its difficult for companies to borrow money for new projects the growth slows down. The GDP growth for the last quarter was down to 6.9 percent. Now this would hurt the sentiments of the over optimistic Indian investors. so the investors started panicking and pulling their money.

Now there were also other significant factors like the withdrawal of FIIs (Foreign Institutional Investments) which is too long to explain.

Why should we invest now?
I think now you got a sense of the state of our economy and the markets. A best time to accumulate any kind of asset is when its cheap. Most of the stocks in India`s  stock markets are currently undervalued. Why would the stock price of a company go down when the company its self is growing 20% annually. Because of the happenings I have mentioned above the sudden panic of investors lead to the markets we are seeing now. If you want to invest for a long term in stock markets, its the best time to do that. In the long term, there is no doubt that the value of Indian markets would go up, because of the strong fundamentals of Indian Economy. We have a huge and fast growing domestic market. Despite consuming a lot we have a savings rate of 35% of GDP. Although we are not dependent on exports our exports are also growing. We are already recovering from the problems addressed above apart from the European sovereign debt crisis. The latest data shows that inflation has come down significantly. The means that the RBI is going to ease the interest rates soon, probably in January. So the economy will pick up its lost pace as soon as the capital becomes cheap. Talking about the Euro zone crisis, if the inevitable happens, that is a default by any of these nations, the world economy will be hurt especially the developed world. Although India's economy would slow down, in comparison with the rest of the world it would be still growing in a good rate. India would would not be directly hit by the crisis because India is not an export oriented economy. The stock market may crash at that period, but it will soon pick up because there is no other place left in the world which offers a good growth. So looking for investing in stock markets? this is the best time. If you have any doubts leave a comment or send me an email.