From Solid To Liquid

The global effect has not been kind to any market in the world. Emerging economies are no better when it comes to giving a performance in the current turbulence wave in the worldwide financial circle with the much impacted credit markets. The shake-up of big investment banks that have had behind them years and years of experience can be looked upon as an experience for the present generation, who must now find their feet and act to get her for a humble approach to investing in the markets.

The ground level of 13,000 plus in the Sensex or around 3,900 in Nifty provides a reason to study the valuations which are down by more than 50 per cent within a year in many stocks. Our economy is fundamentally strong and able to stay ahead positively with a good growth rate. An expectation of around eight per cent GDP is worth considering for any investment. The market has witnessed a tremendous escalation in oil prices, shrinkage in liquidity, and crisis in credit markets.

The financial crisis needs to be evaluated in comparison with the active development strategies employed over the past few years in order to arrive at a clear picture. That's because the facts have remained unclear so far. In the interest of global markets, central banks of various economies have been inclined to induce liquidity. In India, the RBI has taken measures to ensure restoration of balance by allowing liquidity to banks against one per cent SLR holding. Such specific measures are expected to invite dollars into the country to ensure that the financial system is not affected. Moreover, the impact of foreign outflows is what sends shivers down the spine in the market. The slowdown in demand and growth in developed economies provide some relief over a short term. The fall in the price of global crude oil and commodities has arrived in the form of timely showers to cool down the heat that had been generated in the market.

This can reduce the range in volatility but it may take some time before settling down and become more consolidated. The effect of these global ripples may not directly impact many sectors. The outflow of money from the country will put pressure on liquidity and make corrections a regular feature in the market. The growth in GDP will definitely put sectors like banking as saviours, the performance of which will reflect the position of the economy as well. The Indian financial system is expected to stay poised on a steady platform with effective regulations and controls in place as instructed by the RBI. Adequate capitalisation and strict controls are the positive riders for this sector.

The recent fall in yields would have improved the treasury profits of the banks and overall the growth in deposits and credit provides comfort in terms of their performance in the ensuing quarters. As of now the measures to increase liquidity all over the globe will initiate a trend to expect the same from the RBI too. Proper management of this inflation wave is expected to yield the desired result of slowing down which augurs well for the next couple of quarters. The valuations of the fancied power, engineering and capital goods are in a trough. The stocks are ready for the picking by those who can make the right valuations. It is difficult to say what level is good to get into the market and at what level should one move out. One cannot time the market perfectly.