Investing in 2012 has gotten a lot tougher. Volatility has increased across asset classes. The rupee has weakened against the dollar. Interest rates aren’t going down anytime soon. Oil prices are still holding on to gains and straining the finances of importing nations like us. Gold may not see the same safe haven buying as it did in 2011. The policy moves by India on gold will reduce demand and further put pressure on global gold prices. Metals are precariously poised and could see a fall if China consumes less.
Where does that leave equity as an asset class? Equity is currently under-owned by the domestic investors. Investors have continuously moved money out of equities. Foreign investors have been the major buyers of Indian equities. That places Indian investors in a predicament about where they must invest now. Our view is that this may be a good time to start correcting the under ownership of equity.
The markets saw a volatile trading week. Post budget there has been no let up in FII buying. Domestic investors continued to sell. A phase of consolidation has clearly begun and a close watch on liquidity flows will help ascertain the broad market direction. While a clear market direction may take time to emerge, investors can take advantage of corrections to buy equities. When the overall volatility in oil, commodities and currency subsides, equity is most likely to emerge a winner among asset classes. The benefits accruing to earnings of companies will certainly show in the stock prices. The FII’s seem to be investing in anticipation of these events All they need is a slowing down in fund flows.