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The stock markets have crashed. The rupee has plunged to new lifetime lows. Banks seem to be on the verge of increasing interest rates again. Everything seems to be uncertain.
In such conditions, how should one react?
1) Rupee fall
GOLD: The rupee has weakened over 17% in 2013 mainly on concerns of a wide current account deficit – the amount India owes to the world. Indians consume about 900 tons of gold each year. If possible individuals can wait before making gold purchases. This would in turn lower the import bill.
EXPORTS: Analysts suggest that it is not time to give up. Investment bank Credit Suisse recently said in a report, that as long as RBI does not hike interest rates, things are still looking up for the economy, as a weak rupee and improvement in global demand will push up exports. Together with lower imports, this can help reduce deficit, and shore up the currency.
HOLIDAY: Until then, however, it will be wise to roll back your foreign holiday plans, and instead travel within the country.
FOREIGN EXCHANGE: A fall in rupee might be bad news for those planning to study abroad, but it is very good news for those sending money back home. In fact, some people are also borrowing money to send it back home, particularly in the Gulf. Not just that, industry body Assocham says that the falling rupee has sparked a property boom as non-resident Indians (NRIs) are looking to invest in India's realty sector.
2) Stock market crash
The dampening sentiment about the rupee has dragged the markets lower too. If you are an investor in the markets, it is better to wait for the bumpy ride to pass. Some experts may also advise you to invest further, thus reducing your average asset value, and increasing scope for returns.
If not an existing investor, this is the right time to enter markets using the 'Value Investing' technique. Look at this as an opportunity. Remember, companies have not turned loss-making. Many companies still hold promises of growth. They may now be available at cheap prices.
If you don't want to take a lot of risk, you can opt for equity-linked insurance schemes or equity-based mutual funds.
3) Bank rate changes
To curb the rupee's fall, the Reserve Bank of India has sucked out liquidity in the market by making it difficult for banks to borrow. This in turn has prompted private sector banks to increase base rate – the lowest lending rate. This implies loans will become costlier.
If you already have a home loan, with a fixed rate of interest, then you have no need to worry. But if you have a floating rate, you could either shift to a public-sector lender which has not announced a rate hike or wait for the moment to pass. This also applies to those planning to apply for a loan.
And the wait may not be long. History suggests, growth will soon take priority, forcing the RBI to reverse its stand and cut rates to buoy growth.
In such conditions, how should one react?
1) Rupee fall
GOLD: The rupee has weakened over 17% in 2013 mainly on concerns of a wide current account deficit – the amount India owes to the world. Indians consume about 900 tons of gold each year. If possible individuals can wait before making gold purchases. This would in turn lower the import bill.
EXPORTS: Analysts suggest that it is not time to give up. Investment bank Credit Suisse recently said in a report, that as long as RBI does not hike interest rates, things are still looking up for the economy, as a weak rupee and improvement in global demand will push up exports. Together with lower imports, this can help reduce deficit, and shore up the currency.
HOLIDAY: Until then, however, it will be wise to roll back your foreign holiday plans, and instead travel within the country.
FOREIGN EXCHANGE: A fall in rupee might be bad news for those planning to study abroad, but it is very good news for those sending money back home. In fact, some people are also borrowing money to send it back home, particularly in the Gulf. Not just that, industry body Assocham says that the falling rupee has sparked a property boom as non-resident Indians (NRIs) are looking to invest in India's realty sector.
2) Stock market crash
The dampening sentiment about the rupee has dragged the markets lower too. If you are an investor in the markets, it is better to wait for the bumpy ride to pass. Some experts may also advise you to invest further, thus reducing your average asset value, and increasing scope for returns.
If not an existing investor, this is the right time to enter markets using the 'Value Investing' technique. Look at this as an opportunity. Remember, companies have not turned loss-making. Many companies still hold promises of growth. They may now be available at cheap prices.
If you don't want to take a lot of risk, you can opt for equity-linked insurance schemes or equity-based mutual funds.
3) Bank rate changes
To curb the rupee's fall, the Reserve Bank of India has sucked out liquidity in the market by making it difficult for banks to borrow. This in turn has prompted private sector banks to increase base rate – the lowest lending rate. This implies loans will become costlier.
If you already have a home loan, with a fixed rate of interest, then you have no need to worry. But if you have a floating rate, you could either shift to a public-sector lender which has not announced a rate hike or wait for the moment to pass. This also applies to those planning to apply for a loan.
And the wait may not be long. History suggests, growth will soon take priority, forcing the RBI to reverse its stand and cut rates to buoy growth.
Happy Investing!!
We can help. Call 0 94 8300 8300 (India)
Leave your comment with mail ID and we will answer them
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You can write back to us at PrajnaCapital [at] Gmail [dot] Com
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Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.
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