(This appears in today’s Deccan Chronicle/Asian Age)

2016 has certainly not started off well in so far as Financial Assets are concerned. Excesses are coming home to roost and fear of the easy money driven liquidity getting choked is driving money away from Emerging Markets.

 

Global economists are saying that we need not worry and things are not looking bad. I think they said the same thing in 2008. When they could not spot a banking fraud, how can I rely on them to tell me that all is well with the world?

 

Let me look at the companies I own and also at companies I would like to own. I am keeping a watch on adding to my portfolio and not selling what I have. It is money that is not part of my needs in the next ten years or so.

 

For me, it is a bullish time when prices of shares drop and no one wants to buy. I still see a lot of folks saying that the worst is over or near over and time to buy. I will respect their judgement. But I do not want to buy. I do not see any value available. Yes, perhaps some trading opportunities, on large stocks whose prices have crashed and a couple of year’s holding could give a good return.

 

Instead of looking at stock prices, I like to understand how the companies are doing. Are they going to make less money, more money or lose money? And if there is going to be any significant change, is it of a permanent nature or is it just a passing phase? If I can find answers to this, I can decide whether to buy more or sell what I have. Unless there is a permanent deterioration in the company earnings potential, I do not see strong reasons to sell out.

 

Our markets are driven more by FIIs than by domestic investors. A few billion dollars here and there causes huge movements in share prices. Given that there must not be more than twenty companies where a FII can buy or sell a block of shares worth a couple of million dollars, the volatility tends to be high whenever they are active. Our markets are more in the nature of an OTC market. We do not have any retail interest ( How many companies do you know of where there are at least 100,000 shareholders ?) . Yes, I do see that some domestic money has been added- an increased flow in mutual funds and some flexibility to invest given to pension funds. Other than that it is only LIC who keeps tanking up on all equities. In such a shallow market, most stock prices tend to have very sharp movements either way.

 

Thus, if a stock on my ‘wish list’ reaches my desired price, I will not rush to buy everything in one go. I will probably divide it in to two or three tranches and buy it over a month or so. It also keeps emotions in check. Yes, I may miss an opportunity. I am happy to lose an opportunity rather than lose my money. Buying opportunities come once every five to ten years. It Is not that I should blow up all my money in one go. That will push me in to wrong decisions as well as make me miss out when there are future opportunities.

 

Yes, I can see the budget coming. It is perhaps the last opportunity for this government to make any impact. They have not made any outside the budget. A lot of changes which they promised are not happening. As a result, there does seem to be a reluctance for the industry to invest. Announcing a scheme for ‘start ups’ is simply deflecting attention and subsidising yet another section of the undeserving. An entrepreneur has to take risks. And today there are enough venture capital financiers out there. Neither our banks nor the government have any expertise in this area and frittering away tax payer money is poor governance. Existing industry or business has yet to get the confidence to increase capacities or take more risks.

 

I am not in a hurry to invest. I think this is not a time to be brave with my money. I would rather wait till I can see earnings grow. I do not want to buy something simply because the ‘price’ of something has come down. Be careful with your money. After all keeping it in the form of ‘cash’ for sometime is also an investment decision.

 

 

R Balakrishnan

(balakrishnanr@gmail.com)

22nd January 2016

 

 

 

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