Dow that July 2 is upon us, it's time to test all those theories and all the speculation. Will the markets hold? Is this the bottom?
Is this the right time to invest? Every investor in the Indian markets is on tenterhooks, waiting for the answers to these questions.
All we can do is weigh the pros and the cons and try and read what the straws in the wind have to say. Let's look at the facts. What have been the factors pushing down the market in the last few months?
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One, selling by mutual funds. Two, unwinding of positions by operators. The only thing holding up the market has been the $2.5 billion worth of FII investments that have come into the market this year. Going forward, the selling pressure on account of unwinding will be absent.
Selling by the mutual funds, particularly the UTI, is likely to abate, but don't take my word for it. Keep a wary eye on the figures instead. Will FII flows continue?
The foreign brokers believe so. There are plenty of reasons for flows into India, diversification on account of India's relative insulation from the lack of world growth being one factor.
The second, and probably the more compelling, since India has always been a bottom-up market, is that there is plenty of good value available at current prices.
The hitch, of course, is that everybody agrees that liquidity is not going to improve in a hurry, and may even go down further. That will increase impact cost for big buyers and sellers, such as the FIIs. So why should FIIs rush into a market which is difficult to get out of?
It's tough second guessing the FIIs, but the only reason the selling pressure didn't lead to a precipitate fall last week was a lot of FII buying.
The bogey of low liquidity doesn't seem to have scared them yet. But apart from the FIIs, the markets have no other saviour. Local money is likely to take a wait and watch attitude, at least initially.
And with a parliamentary committee investigation going on, the banks are not going to loosen their purse strings in a hurry.
A slightly longer perspective, however, will paint a very different picture. We've seen, time and again, that the Indian retail investor has bounced back into the market in spite of losing huge amounts of money.
It's been said that the Indian investor has the capacity for taking huge amounts of punishment. The truth of the matter is that there are enormous quantities of cash generated in the black economy, and this money will come back into the market at the slightest hint of optimism.
Currently, there is a lack of understanding about futures and options, but that is not likely to last long. Anybody who has the capacity to figure out badla, in all its complexity, will have little difficulty in understanding futures and options.
Also, this time around, there is another factor that should push money into the stock markets. That factor is the current low interest environment.
Earlier, with respectably high interest rates, the choice before the investor was wider. But with interest rates as low as 9 per cent for three-year fixed deposits, not many investors are going to want to invest in them.
To be sure, bank fixed deposits have grown enormously over the past few months, but most of the accretion to deposits is money fleeing the falling markets. That money is waiting to be redeployed.
But what about the