Islamabad, Aug 9(IANS) - India has released nine Pakistani fishermen as a goodwill gesture, a…
Mumbai,Raghu Palat: The Chinese have a saying, “May you live in interesting times”. They have had their wish more than fulfilled during the last two weeks with a tumultuous Sensex rising one day and falling the next. Even during the span of a single day rising by over 800 points to end in the negative. Of course, August 24 was the worst day when the index slid 1624 points. The issue we need to look at is as an investor what should one do – sell or buy?
First of all, it is important to look at the reasons for these massive fluctuations. A major reason is the devaluation of the Chinese currency. It is argued that this occurred because the Chinese economy is going into depression, and the devaluation is to make its exports more attractive. The US dollar is appreciating against most other currencies and this is placing pressure on both US growth and exports. In addition, there is a fear that oil prices below $40 would push the world over the brink into recession or slower growth.
In all this, India, in spite of the political drama enacted every day, is still fundamentally better placed. Despite the increased government spending, fiscal deficit is under control. With foreign exchange reserves of $ 330 billion, India is in a comfortable position. Inflation is well below the Reserve Bank of India’s target level and the GDP is projected to grow at 7.5%. There is also an argument that the steep fall in the value of the rupee to 66 to a dollar is good as the rupee was overvalued. It is argued that this fall will make exports from India more attractive.
So what should you do?
There is an oft quoted saying, “Buy when there is blood on the streets, even if that blood is your own.”
I believe India is fundamentally sound and we are unlikely to see a financial meltdown. The fall on August 24 was an aberration and as soon as sentiments settle down, shares will rebound to its earlier heights. The monsoon has not been as bad as it was feared. With the fall in the value of the rupee IT companies will do better in the immediate term and exports will pick up. Markets will fluctuate.
I believe that if you buy shares of fundamentally strong companies, though there would be aberrations, over the long term, you have nothing to fear. I will not recommend intra day trading unless you are strong hearted as the swings are wild.