The Indian stock markets have had a bumpy start to 2011. The markets seem to be tracing the steps of a cardiac monitor that has gone awry. There are several reasons for it that include higher inflation rates, commodity prices hurting company results, higher interest rates and not to forget the infamous corruption scandals. But a major reason for the fall has been the FIIs, who have sold shares worth Rs 50 bn in just one month. In a recently published interview to a leading daily, the director of Deutsche Asset Management, Mr. Bill Barbour, has cited all of the abovementioned points as plausible reasons for FIIs selling their shares. He has identified inflation as one of the biggest causes. The RBI is expected to raise interest rates to control inflation, which will have a negative impact on the growth. Particularly for the companies who are already reeling under the pressure of higher input prices thanks to the higher inflation. It's a vicious circle.
However, he also states that the current fall of over 12% has made Indian stocks attractive in terms of valuations. So this would again attract FIIs. He has stated that the FIIs would return thanks to their strong belief in 'India's growth story'.
So if Mr. Barbour's words are correct, we may see the influx of FII money returning to Indian shores in the coming times. But what would this lead to? Higher prices. Expensive valuations. And finally market crashes when the FIIs pull out again. Mr. Barbour is right. It is a vicious cycle and we are all stuck in the middle of it.
Want a better option? Forget what the FIIs are doing. Look for companies with strong competitive advantage, run by an honest management team and buy into the same at attractive valuations. We virtually guarantee that this will bring you much better results than worrying about what the FIIs do next.
However, he also states that the current fall of over 12% has made Indian stocks attractive in terms of valuations. So this would again attract FIIs. He has stated that the FIIs would return thanks to their strong belief in 'India's growth story'.
So if Mr. Barbour's words are correct, we may see the influx of FII money returning to Indian shores in the coming times. But what would this lead to? Higher prices. Expensive valuations. And finally market crashes when the FIIs pull out again. Mr. Barbour is right. It is a vicious cycle and we are all stuck in the middle of it.
Want a better option? Forget what the FIIs are doing. Look for companies with strong competitive advantage, run by an honest management team and buy into the same at attractive valuations. We virtually guarantee that this will bring you much better results than worrying about what the FIIs do next.
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