ithought market wrap No. 44, 23 Aug 2011
Hope and fear seem to alternate on the global investor’s minds. Europe is plagued by a crisis for which the solutions may well be long, painful and drawn out. The investor expectation is largely centered around a bail out of some kind. Investors seem to build hope around measures like easing, assistance between nations and bail outs. When these do not materialize, the disappointment turns into fear and shows up in extreme market movements. The only long term remedy is for Europe and America to take short term pain and move ahead towards long term solutions. When they do, we will see hard decisions being taken by Governments, central banks and corporations. The stock market which so far has been looking for short term solutions will probably stabilize only when the long term issues are addressed. Even the fact that hard decisions are being taken will actually improve the market sentiment. After all, investing is for a better tomorrow.
The falling rupee has caught Indian business by surprise. Major importing businesses and major exporters have a new situation to respond to with the rupee nearing Rs.50. The Government will also need to take tough decisions or face widening deficits. The FII’s who have been selling continuously will continue to do so as overseas ETF’s face redemptions. Domestic funds have been absorbing the FII sales and this has cushioned the fall in domestic indices. The ability of the domestic funds to absorb FII selling will be severely tested if markets fall further. Retail investors have remained risk averse and avoided making significant infusions into equity. The absence of any policy driven triggers has affected domestic investor sentiment. The Government has ignored the stock market and even deferred some of its equity sale plans. Investor confidence is hardly on top of the government’s agenda.