Beware, be on your guard, stock market may crash any day!!!!

By bringing down interest rate in bank, Govt pushing depositors to invest . Govt’s drive is not to keep money in the country idle, ie it should work for more money by investing in any other field. In economic terms, its not a bad idea that instead of keeping money in bank account idle, you should invest.

At this, people turning their life long savings to gold, real estate and stock market. Gold for many is a risky way, for who will keep it safe–of course, one can keep in bank locker, but still there is uncertainty. Property , is mostly paying, but has its risks from many quarters. Price may  fall, may be illegally occupied by others, builders may cheat–anything may happen.

Many, many people turned to stock market, and invested blindly. With introduction of online transactions, buying stocks is very easier, but risk is highest here. It functions in a way that it fuels the greed of the investors who are basically ignorant about the working of the market, world economy, political implications. As I have understood stock market , especially its day trading versions, does not run to any logic, but the gullible quite easily enticed into it, and puts there lifelong savings into it and soon lose their shirt. Share markets have all the lure in it, and at this moment it is in the high tide of risk . I found the TOI editorial quite timely and appropriate. I have preserved here for my periodic guidance. Please read the article, and be cautioned. But decisions is yours AKHIR SHAR HAI APKI……………..

A casual observer might conclude that India is one of the most promising markets on the planet today. She would be wrong, mostly. Yes, the two main top-tier stock indices, the 30-share Sensex and the 50-stock Nifty 50, are at or near historic highs.

Yet, there are large and persistent weaknesses in finance, manufacturing and job markets that are hidden by this bull run. Of the 30 stocks in the Sensex, less than 15, or half, can boast of a sustained increase in valuation. These include L&T, HDFC, ITC, TCS, Wipro, Reliance and so on. The largest lender, SBI, is in the red, as is the largest private sector bank, ICICI. The sector has been bruised by bad loans and fraud. Manufacturing companies like Tata Motors or Bajaj Auto, sputter. First-quarter corporate earnings are flat. Unsurprisingly, the price-earnings (P-E) ratio of the Sensex, a measure of how closely equity prices are aligned with or unmoored from earnings, is now nearly 25. This is higher than the high teens attained during the dotcom bubble — a signal that equity is now driven by pure cash, not future earnings potential. Things are worse for mid-size companies.

The Nifty Midcap 100 is down nearly 7% from January. Its P-E ratio is 47.3, a sure indicator of a bubble. Investors need to tread warily in such a market. From April to now, overseas investors have sold heavily, but the slack has been taken up by domestic institutions.

A systematic investment strategy that averages the purchase cost by spreading it across boom and bust cycles, is the correct thing to do.With bank interest rates, real estate and bullion no longer attractive, people have poured savings into mutual funds. Spreading funds across equity and debt funds is another good hedge. Any strategy based on immediate expected gains is hugely risky. Learning to diversify risk need not come the hard way.

Author: Your useful Books.

An online seller of books. Lives in Mumbai and Kolkata.