Caution is your watchword.

When politics sets the agenda for the stock market, it often leads investors to a state of confusion. Should one put economic realities behind and make a leap of political faith? A rational mind will think otherwise. But, investing often goes beyond the rational. Most investors show readiness to overlook the immediate economic reality and bet on stocks if they see a favourable political climate emerge. So, when the political trend turns favourable for investment, investors starts to show rising exuberance. The problem with politics playing the lead in decision making is that it inevitably leads to over exuberance. Investors will always do better to follow a bottom up approach when politics drives market sentiment. Investing will closely get correlated with business valuations and one can avoid overpaying for a stock. By not overpaying, we minimize the risk of loss.

Iwiz: Investing should be fun and challenging, not stressful and worrying. – Walter Schloss.

Invest speak: Gold investors in India must be very careful now. Firstly, gold prices in India carry a 10 % premium over global prices. The culprit – the customs duty imposed by the government is inflating cost severally. Effectively, it works like a consumption tax. When one buys jewellery at this tax inflated prices, one must consider that other charges like making and wastage get compounded by the tax. The consumers over pay heavily. And, they run the risk of a severe capital loss whenever the customs duty is withdrawn. A greater fear is the flight of capital from gold when the easing is withdrawn by the US government. Global gold prices have already started softening in anticipation of this event. When QE ends, gold may see high downside volatility. That makes it a double risk for the Indian gold buyer. Caution is the watchword.

Istrat: Hold your horses. Watch inflation data before you decide what to do.

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