Greece Crisis/ EU Crisis/ Sovereign debt crisis Impact on Indian markets_1st June, 2010: Be and Make

It is the time to evaluate the conditions of the market, in these volatile conditions how markets will behave and what the positive and negative factors we are having.

Global sovereign debt crisis will have severe effect on the global economy including the emerging countries like India if it prevails for the longer time.

What are the factors which can act as positives for the India?

Sovereign debt crisis lingers on the EU countries, which results falling in EU currency value, crude, commodities etc.,    

1.      So, globally commodity prices should fall after this crisis resulting a good opportunity for India so narrow the fiscal deficit.

2.      Globally India will emerge the safest destination to the investors and all global investors will rush towards the Indian markets AFTER this crisis.

3.       India needs more capital to fulfill its requirements and maintain its growth rate. So, if they rightly managed the inflows then our markets will be in a spectacular position in the long term.

4.      Lower commodity prices will always help the emerging countries like India.

5.      GDP numbers likely to be around the 7.2 as most of the analysts feel that Auto numbers also surprise the market.

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Please go through the 2010 market outlook of be and make: http://www.stockstowin.in/2010/01/market-outlook-for-201014-01-2009-be.html

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The negatives:

1.      Indian exports will shrink further for sure… Assocham expects that it would be around 10%.

2.      Indian broader markets are still trading above the 10 year average PE means they are not at attractive levels to enter at this point of time at the same time they are not at peak.

3.      Whether this crisis will stop with the Greece or the chances of spreading to other EU countries? There are chances of this spreading…

1.      The unemployment in Greece (9.8 per cent) is dangerous; it is worse in Spain (20.5) Portugal (10.5), and nearly as bad in Italy (8.6).

2.      The fiscal deficit of Greece (12.7 per cent) is high, it is no different in Spain (11.4) with Portugal (9.3)

3.      If Greek's external debt to GDP is bad at 187 per cent, Portugal (218) and Spain (229) are far worse.

4.      In India, banks say that corporate demand is not picking up hence interest rates not likely to go up in the short time. It clearly indicates that despite the tightening measures Banks are the hiking the rates means there is not that much demand for loans.

5.      In India, inflation is at very high… and PM saying that it will be around the 5% only after the December. For very short term there is negative impact but as the crisis widens in terms of inflation we are having some relief due to slip in commodity prices.

6.      For the current fiscal, FY10-11 India is likely to have a fiscal deficit of 12% at least. Every analyst satisfied with the global recovery and it is a one time issue hence government has to deal it with a one time perspective. Luckily government has the chance to restrict the fiscal deficit for the FY10-11 by means of PSU disinvestment, 3G Auction and Wireless broad band etc., will fetch more than Rs.100000cr for the government which narrows the fiscal deficit significant manner for FY10-11. If global economy not re-bounded and the crisis likely to stay for some more time then what will the growth target for the India? How it will fetch the money to narrow the fiscal deficits? So, some difficult periods are likely to come for India if the global economy is not re-bounded in time.

There are so many negatives along with the above like Ireland, Great Britain are also having some troubles in their economies. 

So, now the questions are…

1. Whether we are going to have the double dip in global economies?
2. If so, in India we are going to see the previous lows i.e., 2550 of Nifty?
3. What action we have to take as an equity investor?

The best possible ways for us:

1. I already gave a call to STAY WITH CASH not less than 30% or hedge your portfolio IRRESPECTIVE OF THE STOCK YOU HAVE.  (http://www.stockstowin.in/2010/05/it-is-time-to-hedge-your-portfolio-be.html)
2. What about the stocks, whatever the stock you have just remember the basics of investment i.e., ‘asset allocation’ now shift ‘some’ of your funds in gold. It can be act as a safe bet under these volatile conditions.
3. Based on the current conditions we can not give the verdict that we are in a bear market but it is the cautious time and investors should act very swiftly according to the conditions.
4. Now there is some good news along with bad news and the ratio is 3:7.
5. The risk-reward ratio is not at all favoring to buy at the current levels hence it is advisable to maintain cash levels not less than 30%. Those who are with the 30% or above can retain their positions. Those who are with 100% exposure to equities can use this rally to cut their positions or hedge your portfolio.
6. There is every chance to test the 4620/4440 levels if the EU crisis widens.

What are the conditions or triggers for this call?

1. Whenever Nifty crosses 5220 levels with strong volumes and sustains above it for couple days then this call or views vanished.

With thanks

Be and Make

http://www.stockstowin.in