The global equity markets remained volatile during the month of February. Italian Election results raised concerns over recovery in Euro zone. The markets took a hit by the news that there is a possibility of one more election as Italians failed to elect a stable government. Euro zone is expected to extend its woes until the Italian people reach to a consensus and elect a stable government at least in the second go. US markets have been the lone bright spec among the major markets. US markets have been performing well and continue to do so. Asian markets will continue to remain large bound, except for some small economies like Philippines, Thailand and Indonesia.
The first week of February recorded losses at both Nifty and Sensex with pre budget news of government revising the economic growth rate and high fiscal deficit numbers. The next two weeks remained range bound in the anticipation of Budget throwing in next set of triggers for the market. However, the union budget failed to live up to its pre budget hype. It disappointed on various counts. Especially with the pre budget expectations of a reformist budget, no major measures were taken to control the current account deficit. The markets responded negatively to the budget news.
Though India has seen a reasonable growth rate from 2008, it failed to attract the investors. The markets continued to underperform. Especially the small cap and midcap sectors are under pressure with investors exiting their positions even at a loss. The problems of mid cap and small cap will be magnified by the speculators and short term profit seekers. The over dependence on FII and sentiment driven investments is hurting the prospects of India. Having said that, on the domestic front we need more long term investors than the speculators. The FII activity in equity markets and activity in Mutual funds is shown in Figure 2. The success of Indian equity markets lies in the participation of Retail Investors. However, the Union Budget failed to provide the necessary impetus for increasing participation of retail investors. Measures should have been taken to incentivize the savings and investments of the households. We advice the interested investors to look for reliable advice and pick the best stocks and funds based on their fundamentals. This is the best time for long term investors who rely on fundamentals rather than sentiments to take positions and hold them for longer periods.
Written By Arthayantra
