Saturday, January 24, 2009

Searching for the Indian Investor

The Sensex is on the verge of touching lower bottoms! (no pun intended) The world seems to be preoccupied with economic problems of its own so much so that they would hardly be interested in the Indian Markets at the moment. Our markets at the moment are 'Emerging" and too minscule, just to put things in perspective, the $700 Billion was the first Bailout package announced by the US government, and a similar package to follow ( now that Mr. Obama is firmly in the drivers seat) is almost twice the total market capitalization of our Sensex. So lets forget the Foreign Institutional Investor (FII's) and Hegde Funds (they are undesirable anyway) and look with in our country and search for the elusive Indian Investor, who is fast disappearing like the Indian Tiger.

What has been the reason for the Indian investors disappearance? Lack of confidence in the Capital Markets beacause of their inability to understand the markets, with no access to proper advise even from brokerage houses (who deemed fit only to promote Futures trading) resulting in complete destruction of whatever little capital the 'Investor' had, little realizing that he became a punter/speculator/gambler and would be better off at the Mahalaxmi Race Course.

Notwithstanding the Global meltdown, current economic slowdown and the Satyam episode, there is a case for Investors to take the plunge. The PE ratios are at an all time low. Even if the markets are to fall another 10-15 % and, if we, believe that we can never enter the markets at the lowest, its about time that the investors start purchasing stocks. The risk reward ratio is clearly favourable at this time with an investment horizon 6-12 months. The economy will still grow at 5.75(IMF estimates) or 7% (Ministry of Finance), which will still be amongst the highest growth rate in world. Much of our economy depend on the monsoons which were reasonably good leading to decent internal consumption, rising prices of Crude, which was a concern, are at comfortable levels and inflation is low. What is needed is stimulus for demand for goods and services. which may be provided by cutting taxes and placing more money in the hands of the people, those people who will not hoard the money but will spend it...meaning the poor sections of the society. If corporate governance (or the lack of it) worries investors then maybe its time to go back to the listed Public Sector Enterprises (PSU's), atleast there you can be reasonably certain that the profits are not misstated or the balance-sheet reliable.

The flavour of the day for investors is preservation of Capital. Hence the alternate investments sought for are Bank Fixed deposits which offer around 10.5-12 % pre tax returns per annum. Agreed that equity investment are risky but it is this very element of risk which yields profit, and to my mind the risks involved at this stage are limited whereas the potential profits could be very handsome. The FII's will come , but only after they've dealt with problems at home, which could take a while. Its about time we start doing what enterprising investors have done - take calculated risks.