Niranjan Chatterjee’s Weblog

August 9, 2012

Investing in Indian stocks makes good business proposition

Indian stock market has come of age and with its status as one of the emerging economic powerhouses of the world investors across the globe are making a beeline for Indian stocks. As Indian government opened up the economy to the rising tide of globalization and liberalization, foreign investments started pouring in.
These investments ideally should have been Foreign Direct Investments (FDI) but given the labyrinthine Indian bureaucracy and myriad permission required for setting up a production hub, foreign investors chose the easier and less cumbersome way of portfolio investment to partake in the resurgence of Indian economy.
Indian stocks and rising tide of Portfolio Investment
Though Indian economy did not directly gain that much from international portfolio investment, Indians, especially the burgeoning middle class started gaining unexpectedly from the steadily rising stock market indices and domestic investment also started getting diverted from other sectors and got funneled in stock markets. It must, however, be stated that large Indian corporations grabbed this opportunity and collected large volumes of foreign investment through Global Depository Receipts (GDR) and American Depository Receipts (ADR) route.
As a result, Indian stocks got the much needed boost to become at par with stocks of multinational corporations that are traded across all major stock exchanges of the world. Names of Indian companies began to be discussed and their performances began to be closely monitored by all major investment banks of the world.
Basking in the glory of international attention stock markets in India enjoyed every moment of it and small investors discovered Mutual Funds as the new key to almost overnight riches and gains that were unthinkable in staid Indian stock exchange of yesteryears. Mutual Funds on their part sat pretty with humongous volumes of cash at their disposal as Fund Managers who were a reviled lot during the meltdown in 2008 found a new and totally serendipitous lease of life.
Things reached to such a level a year and a half ago that even the ever thriving housing construction industry also started complaining of cash crunch as large chunks of funds were feverishly diverted to stock markets in the mad rush of raking in gains. Privately funded construction and infrastructure projects were left midway and builders were perhaps the unhappiest group of people in Indian economy.
Indian stocks and global economy
Though flow of foreign investment sure made Indian stocks lucrative financial assets, they also brought in their wake greater volatility and instability in stock markets. Previously Indian markets and economy were insulated to a large extent from upheavals in international fund markets but now they started getting affected more directly and more violently from every ripple in global markets.
Stock market indices became talking point in every Indian household; something unthinkable two decades ago. Indian stocks had by now firmly got middle class aspiration in their grip and became the golden key for climbing the social ladder.
However, volatility continued to remain one of the biggest worries of small investors but they were mature enough to accept this unavoidable malady as a necessary nuisance in their quest for financial prosperity.
As of now Indian stocks have reached a position where they are sought after in all corners of the world and small investors would do well to concentrate on midcap stocks as they happen to best withstand stock market volatility. But they rarely offer scope of spectacular windfall gains and individual investors would have to do their personal cost-benefit analysis before deciding on which stock to buy which one to sell and which one to retain.

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