The Indian stock market is getting pasted. It is down almost 21% in about six weeks after dropping 3% last night.
I have been public about my exposure for clients to India through the India Investment Fund (IIF). I sold some in late April around $51 and sold some in mid-may at $43.50. The first sale was to reduce emerging market exposure, the second sale was because it felt like there was a real capital flight underway. The second sale seemed to be more wrong than right initially and may turn out to be wrong but this morning IIF is indicated to open below $42. I can't know whether it will keep going down from here or if today will be the bottom.
In making the second sale I was concerned about increasing volatility. To be clear I was concerned about future price action. That it was down X percent from its high was not the priority. Caring about the drop as the first priority would be looking backward. Caring more about where it has been is a common emotion but is not conducive to successful portfolio management.
India is not permanently broken but it made sense to me to reduce exposure and keep it very low for a couple of months.
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7 comments:
"Reduce exposure and keep it very low for a couple of months" - this is tricky in a taxable account. I own this one as well and have sold a 1/3rd mostly in the mid 40s. Sold some in the 50s but in hindsight not enough. I am wresting with further reducing exposure. Is your plan to reinvest at better prices? From a price of 42, you would have to pick it up below 36 (15% drop) to make it worthwhile. I could see it getting there (or worse) if the global markets continue to struggle and investors become more risk-adverse. This isn't to ask what I should do but more to better understand your plan.
This is a great question.
I think I look at it differently than you do, no right or wrong just different.
I think the question looks IIF as an island I am thinking of its role (as part of my emerging market exposure) with in the entire portfolio.
Right now I view India as having more risk and volatility potential than normal. At some point this will change (or at least my perception will change).
If it went to $40 and I then felt the volatility were behind it and that it could then go to $60 I would not hesitate to buy more. Under this scenario my sale at $43.50 might have turned out to be a bad idea?
Of course buying back at $40, when comapred to sales above $50 looks better that the sales in the mid $40's.
It is also possible that I would add India back with a stock instead of the fund.
My priority was managing risk and volatility. Taxes are never the first priority for me in portfolio management.
It might be a good idea to keep Macro-Economic issues in mind:
From the UK "Telegraph”
(Quote) The first casualties began to emerge on the fringes of the 'yen carry trade' earlier this spring. Hedge funds that had borrowed for zilch in Tokyo, . . . began rushing for narrow exits."
"'Most people underestimated the effects of monetary tightening in Japan,' said Phillip Poole, an economist at HSBC. 'The liquidity that has driven these markets is being withdrawn.'"
"The next Japanese spanner in the works will be the end of zero interest rates, or zirp as it is known. Bank-watchers have pencilled in July or September for the moment of reckoning. Few investors lose sleep worrying about life after zirp, but our guardians at the Bank of International Settlements view it as the greatest imminent risk to global markets."
OG
thanks OG, do you have a link to the article by any chance?
Nomura came out with a report that says 7000 is a 'fair value' for the Indian Sensex. That is almost 3000 points and 30% lower than today! See
http://news.moneycontrol.com/india/newsarticle/stocksnews.php?autono=217641
Given that the majority of the selling since May 12th, is allegedly due to the new Foreign money from Japan (since the Oct 2005 dip in Indian markets), this report may have a bit more creditability than others.
Also, in this recent selloff, Indian domestic Mutual funds were net buyers to almost the same extent as the FIIs were net sellers - all while markets dropped 20%. However, if the Indian investors blink and sell their funds, we'd have more downside.
Indian Mutual funds report their numbers for May next week, so it is indeed prudent to sell now.
To make a quick buck on the downside - You can always short the fund IFN which still continues to sell at a 30%+ premium to it's NAV. If there is further sell-off, this has MUCH further to fall. It had over 7% of the outstanding shares short as of mid last month (before the sell-off).
Roger
Money and Metals Blog has a summary of the Telegraph article;
http://moneyandmetals.blogspot.com/
it also has a link to the Telegraph, but it wouldn't work for me, (although it worked on other articles)
Look for an article titled "Life After Zirp"
OG
The Bombay 30 index has gone up a few hundred percent (300% to be exact) over the past 3 years. This is a raging speculative bull run that is comparable the NASDAQ in 1999-early 2000. The recent correction of 20% is just a pullback in an uptrend that is still clearly intact even on the daily swing chart. No panic needed. If the Bombay 30 index dips below the 200-day moving average and flushes out more stops, I would be a buyer.
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