When Havens fall !

Free fall Friday it was. And, how? A day when safe havens crumbled like they never really were safe. Infosys, gold and silver as a threesome make for odd company. But, they send out a message which investors can ill afford to ignore. Safe havens are safe only at a price. If the price is stretched, then the elastic expansion will reverse at the slightest panic. The flight of capital out of safe havens is the story of 2013. We saw this coming and for a good reason. Investors were over paying for safety on the one hand and undervaluing risk on the other. Today, Risk looks cheaper than safety and far more attractive. It makes better sense to gradually step out and buy risk rather than hide in safety. That is a signal you must take note of.

Safe havens are also price sensitive. Safety is never a given.

Invest speak:

The markets have clearly been treating private players and PSU’s differently in recent years. Despite stable earnings, good dividend payout and decent business visibility, PSU’s have clearly lacked market recognition and trade at a substantial discount to private players. The prospect of disinvestment has also contributed to the weak valuations of PSU’s. PSU’s which once traded at premium valuations now trade at discount valuations when they announce an offer for sale. Investors must remember that PSU’s have been growing through the most difficult economic times, with very little equity dilution. The promoter selling stakes will increase liquidity temporarily. Once the markets absorb this liquidity, PSU stocks will reflect business fundamentals and prices will once again recover.

Risk looks attractive. Buy it judiciously.

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