Wednesday, August 28, 2013

With the Rupee is at 66 to a Dollar and the sensex below 18000 – what should you do?

The Congress and BJP have joined hands to pass the Food security bill yesterday. There is a general belief that this bill is a vote security bill for politicians and will lead to massive leakage of tax payer’s money.  By spending INR 1.3 trillion per annum on this scheme, the govt would have less to spend on wealth creating assets like infrastructure, education and health. The massive govt purchases of food grains for this scheme will leave less food grains for the open markets and that would mean food inflation and the operational inefficiencies would also mean that the poor won’t get their food.

Not surprisingly the Rupee saw its steepest single day decline in the past 17 years (of 2.84%) and the sensex fell by 590 points.

And there are other events unfolding far away that impacts us -

-The US economy seems to be stabilising and so US Fed is expected to start tapering the Quantitative easing in the coming months.  

-The problems in Syria have escalated since the chemical attack on 21st Aug and that is pushing up the crude oil prices.

Some purists even now tell me that all this is fine – just look at individual companies, their share price and their past performance and look at opportunities to buy at prices that are attractive. If I go by that logic, the market is full of opportunities to buy. HDFC bank is at 561, Asian paints is at 410, BHEL is at 111, L&T is at 705, MARICO is at 207 – all these are great companies and in most cases, at these prices are worth buying right now.

But I believe it is not as simple as looking at individual companies – the macro economic situation does matter. Sliding rupee is going to create problems for all companies in India. Tapering of QE in the US is surely going to result in increased cost of funds globally. The macro situation is fairly unpredictable and when there is such uncertainty, it is best to wait and watch.

So I  recommend that we wait and watch as the situation unfolds.

 -Should you sell your stocks and exit?  That is difficult to answer – I am not selling.

 -Should you invest now?  I recommend a wait and watch policy. As a conservative investor, I would wait till the situation is more stable. May be the buying opportunities would have vanished by then – but that is OK. Peace of mind is more important to me. I intend to wait and watch for some more time.