Nifty 50 has tumbled nearly 12 percent from its all-time high of 11,760 levels and become the worst performing equity market globally due to various underlying problems such as devaluation of the Indian rupee in terms of the US dollar, widening trade deficit, rising of crude oil price, a slowdown in credit flow through NBFCs have also emerged as risks of economic growth in the near term. Meanwhile, the recent default on bond payment by IL&FS is a cause of concern in the debt market as well as the equity market. On the other hand, the worldwide investor’s worries because of escalating trade tension, slowing global growth and rising US treasury bond yields.
Foreign borrowing of the last five years was much more in comparison to other years, which reflects that India is continuing very tough times, despite of robust growth in the GDP. The fundamental of Indian economy is strong in comparison to its peers. However, the Indian rupee is trading above the 74 mark against the US dollar and it is depreciated around 15 per cent year-to-day. The experts / analysts are advocating that Indian Rupee has a better position than the currency of the emerging markets in terms of the US dollar. Now, we are suffering the consequence of rupee devaluations in our quotidian life, retail inflation rate rose to 3.77 percent in September from 3.69 percent in August and decreased the growth of industrial output, which also adversely affects capital market function and increases the dependency of foreign currency.
The gateway of the voluntary retention rate (VRR) is a good initiative taken by the RBI, may control the rupee volatility in the near future and stabilise bond yield. High volatility, in-between 1.5 to 2.5 per cent (loss/ gain) in a single day, in the capital market during the last 15 days was not a good sign of a healthy economic environment, but confusing the investors as well as market players. The biggest foe of the capital market is the sentiment of investors. To keep the capital market healthy and stable, investment norm of foreign portfolio investment (FPI) & foreign institutional investor (FII) needs to be stringent by the Regulator.
The re-assessment of fiscal math is required in order to maintain economic growth and control the rupee devaluation and volatility of bond yield. The role of the regulators is very vital as common investor sentiment worsens day-by-day due to high volatility. While volatility is an integral part of the equity market, that does not mean equities give low returns. Over the long run, equities will provide good returns above inflation, beating all other asset classes like commodity, gold, and real estate. As the tenure of investment increases, the probability of negative performance decreases.
The data show that, there has never been an instance of negative performance equity for a period of 10 years and above. So far as a mutual fund investment is concerned, investors may use wonderful tools of systematic investment plan (SIP) and systematic transfer plan (STP) and best used the hard-earned money for long-term horizon, during the high volatility capital market. The new investor may treat the current correction is a right opportunity and build portfolios by investing, fundamental stock having true value (intrinsic value).
Mohapatra is AGM/ Finance in IRCON.