INVESTMENT IN RISKY MARKET
We are discussing in how many form we can invest in todays risky market. The rupee has been giving tough time to investors by its unpredictable movements in global market. The currency, which slumped and touched a record low of 68.36 to a dollar on 28 August 2013, has risen 12.75% since the new RBI governor Mr. Raghuram Rajan takes in charge of India’s monetary regulator; it was at 59.64 on April 2.
The currency has gained from a host of factors in late. Improved sentiment due to steps taken by the Reserve Bank of India, or RBI, to stem the slide and hope of a stable government at the Center have helped it conquer the 60 level and even push towards 59.50. Experts are not too sure about the way INR is behaving in the midst of global inflation, Iraqi crisis, and heavy demand for US dollar, but say it may touch 50-55 in the short term if India gets a stable government in the next 5 months. This is because in such a case foreign investors are expected to pump in huge money into Indian equity and debt markets. This will increase demand for the rupee.
Let us understand factors that are giving upward direction to the rupee and how you can structure investments to gain from its movements in risky market. How to structure investments to gain in INR fluctuation? Since September, the RBI has taken a number of steps to lower banks’ non-performing assets, deepen financial markets and ensure clear monetary policy guidance. It has also shown resolve in preventing currency volatility by buying and selling US dollars.
The government, too, has played its part by controlling the country’s current account deficit or CAD. This has given investors confidence about India’s macroeconomic stability. A lower CAD means less demand for foreign currencies to bridge the gap and, hence, lesser risk of rupee depreciation. As a result, they have been buying a lot of Indian securities. Indian equity markets have surged to their lifetime highs. On a year-to-date basis, till May 16, foreign institutional investors, or FIIs, had put in over Rs 77,958 crore in Indian equity and debt markets. Government and corporate debt has received a lion’s share of Rs. 36,000 crore. However, with FIIs preferring short-term debt over long-term debt, there is little room for further inflows.
KINDS OF ASSETS AND ITS BEHAVE IN THE MARKET
1. Equities: Assets like equities depends upon different kinds of goods and services sector wise. The fast moving consumer goods are pharma and IT which will be under pressure from a rising rupee due to dependence on exports, and if rupee is declining then there is favorable time for exporter. While core sectors such as engineering, infrastructure, banking and capital goods are expected to perform better than the index in the medium to long term.” A stronger rupee makes exports expensive and less competitive. Typically, engineering goods and gems and jewellery makers also gain when the rupee rises as they import a lot of raw materials or vise versa. While investing, it is important to have glance on rupee value and should have the knowledge of goods India exports and imports.
2. Debt: “High interest rates and rupee rise will give a boost to returns that foreign investors can earn from fixed income instruments. However, lower inflation will translate into lower interest rates, reducing the attractiveness of fixed income investments, as well as to loose before attractive interest rate provider. Fiscal deficit and government borrowings will decide the trend in 10-year G-secs, which shall determine the level of interest rates in India. Rupee appreciation will tame inflation and, thus, support the cause for reducing interest rates.
3. Commodities: India is a huge importer of various commodities, including crude oil, copper, urea and gold. Rupee appreciation brings down the landed cost of imports. This reduces inflation. Lower rupee volatility helps users of these commodities price their finished products in an orderly manner. If rupee strong then the import will rise, and if rupee weak then export will have favorable time of business. Perhaps, India must increase its exports than imports by measuring maximising alternative use of resources whose demand is high.
4. Real estate: The sector has been under pressure due to high interest rates over the last few years. Any easing of inflation and interest rates will revive demand. However its investment moving very fast, as its give handsome return within a year, and maximise its return if invest for a long terms. The investment should be make on the gound of area developments measures passed by the Government, like national highways, airports, metro rail facilities etc. It is very important for the investor, to have good judgment from every sector before landing to invest in order to get good return.
INDIAN RAILWAY FARE HIKE ARTICLE : http://www.seedsofloveindia.org/why-govt-hike-railway-fare-without-thinking-about-common-man-budget/