By Divya Shukla
It was a breaking news from US on Fridays morning where the possibility of dovish Ms. Janet Yellen succeeding Mr.Ben is gaining momentum. After so many black Fridays observed lately, market-watchdogs will finally be able to relax the following weekend. This signal sparked market recoveries in Asia, which had been experiencing a bumpy road since the US saw improving job numbers despite the shutdown. Its now clear that if not the stimulus, then, at least, the dangers of tapering have been postponed to early next year. But as we know, precaution is better than cure, please be aware of the Bulls at the Asian doors, when things are still not FUNDAMENTALLY right.
Its been over two years and India is still seen struggling with the problems of inflation and sustaining capital flows. With added liquidity, it may seem tempting to invest in the Equity-class at present, and reap good returns in very short period of time. But, note that, it has a very high opportunity cost. So, we can say that whatever capital flows in the equity we are going to observe in the markets at present, may lose its worth in the medium to long run. Therefore, to be on the safer side, it becomes important for short-term investors/traders to reconsider the appropriate options to park their funds.
Inflation worries in India are gaining momentum yet again, with WPI well above the comfort level (7.25%) and CPI back into the double digit range(10 %). Yellens defensive stimulus plans are already transmitted on the oil prices which rose above $94, which will be then pass-on to Indias inflation problem. All this may leave the RBI governor in a fix because he may have more dollars, but inflation problem still remains unsolved. So, despite dedicated efforts, the deadline to reverse the hawkish monetary stance seems to end nowhere in the near future.
Therefore, we need to be rational in order to decipher our suitable investment avenues during such turbulent times. The stimulus may seem lucrative for the investors to invest in fundamentally wrong assets (EQUITIES-to be more specific) at this time. As we know, equities have a high-risk, high-return characteristic but, if we take Indias economic situation into consideration, equities at this time have the bear high risk and less return . With the prevalent economic situation in mind, stocks will remain overvalued for some time. The piece of advice is- Its good time for those who want to make an exit but bad timing for the investors to mark an entry at this juncture.
As we know, the persistent inflation problem is another factor which is stopping our economy from going back on the growth path. In other words, we can expect policy rates to remain intact or move upwards in the near future. Hence, the bond class, especially the short-term bonds/debt funds have a potential to give decent returns till the next two to three years time. Not only will they be giving assured cash flows but this will come with hefty returns, once the interest-rate scenario in India improves (i.e. tending downwards).
Keeping fingers crossed, if things improve on the economic front, then we can perceive a situation where the returns from the currently invested short-term debt funds and bonds are collectively directed to the equity-class. But, for the time being, its better to be aware of the Bulls in the Asian markets, and abstain yourself from investing in the aerated bubbles that are formed in the stock markets here, as they can go bust anytime, eating into our capital.
A graduate with a Major in Economics degree from the renowned University of Delhi and is about to enroll for Masters program in Financial Economics in Babasaheb Bhim Rao Ambedkar University, Lucknow. Whilst this journey of financial economics is a career path, has also developed a diverse field of interests, (especially in Economics, Politics, and Finance).