Black money crackdown: Is this the right time to invest in equities?
Modi government's decision to curb black money will hit real estate, jewelry and consumer durables sector for shorter term.
When investors were still coping up after shocking announcement by Prime Minister Narendra Modi, on Wednesday, the US selected Donald Trump over Hillary Clinton as its 45th president.
Domestic stock markets crash was expected. On Wednesday, Sensex plunged by over 1400 points but during the day it recovered before closing down 338 points. Investors' panic was natural.
But, is market fall an opportunity?
FundsIndia.com in a report said, "This is the perfect opportunity to invest. Do not panic.All signs point to a period of volatility in the markets as they assimilate these events. Given India’s internally-driven economy and prudent government policies, this volatility is a good time for astute investors to invest more on dips".
Explaining why this is the right time for investors to go ahead with investment, the report said, firstly, there will be volatility in the market. Currently, there is no clarity on Trump's policies. However, the probability of the US Federal Reserve raising rates next month can fade until there is more certainty on the direction the US economy will take.
Also, Brexit decisions and reactions of central banks across countries to the apparent new US government and policies will dictate institutional money flows. "Uncertainty can lead to world market corrections. Internal factors such as the earnings season, the budget for 2017-18, and the transition of GST will also cause spikes in market movement locally too. This will provide you with periods to average your investments by buying more on falls", the report said.
Secondly, as per the report, India's position among the emerging economies is strongest. Considering, policies like GST, curbing blackmoney and ease of doing business, will put the country in brighter position over the long term. Moreover, India's trade relation with US is well as compared to other countries, which makes it a better investment destination in the eyes of foreign institutions and investors.
Is the volatility for short term?
Modi government's decision to curb black money will hit real estate, jewelry and consumer durables sector for shorter term. Following real estate downturn, NBFCs and banks likely to face trouble recovering their loans.
"At this time, sticking to large-cap funds will be prudent as mid-cap funds can see steeper falls should a correction set in".