experiencing a Christmas boost, thereby making the possibility of the Fed pushing it back until early 2014 a distinct possibility.
The uncertainty of the entire exercise makes the possibility of more gyrations in the emerging economy markets, especially equities, a real concern.
In fact, in Friday’s monetary policy announcement, RBI Governor Raghuram Rajan asserted that the Fed’s decision to put its $85 billion a month bond-buying programme was just “a postponement”, even as he stressed on the need to prepare “a bullet-proof national balance sheet”, especially in the context of the general elections looming large.
On the domestic front, market experts maintain that structural uptrend in this sort of a market could precipitate when the interest rates are low and the return on equity rises, which will happen only when corporate profits go up.
As nothing has changed fundamentally for the economy, and the rise in the markets seem to be only driven by sentiments, the sustenance of the surge in equity markets is unlikely. Therefore investors should not venture to play in the markets on a sharp rally.
The research head of a leading global financial services firm said that the second quarter results will be disappointing and therefore the earnings of companies are not expected to witness any growth which can prove to be another major dampener for the markets.
But experts suggest to book some profits when the markets rise and Thursday offered one such opportunity. The rise on Thursday, which took the Sensex to a near three year high and also much closer to its all time high levels, provided investors a good opportunity to book profits.
While the market was enthused and rose swiftly after Fed’s announcement, there is a broader sense in the market that the momentum cannot be sustained unless things start changing on ground for the Indian economy.
The Short Term Bet
There are hopes that the US Fed’s decision to continue with easy money policy will lead to an inflow of funds in the emerging markets including India and will also stop the outflow of funds for now. However, while that may be true till the US announces to scale back of its bond purchase programme, the minute there is an indication of it happening, the outflow of funds could commence.
Investors should therefore avoid falling into the lure of playing with stocks and wait for the structural improvement, such as interest rates going down