There are warning signs all around. Despite trade wars and geopolitical tensions, the relative calm in asset prices is disturbing. Equity assets and gold prices do not rally or fall in tandem. The dramatic surge in gold prices over the past year indicates a risk in financial markets. It is not just gold. The precious metal pack is surging. Silver prices are surging, too. If you hear some prominent voices in the world of global finance, we are witnessing a lull before a storm.
Gita Gopinath, a renowned economist who recently stepped down from the International Monetary Fund, warned in an article in the Economist magazine that global equity investments in financial markets are concentrated in a few US stocks. Any sharp selloff in America could trigger a global selloff that could wipe off trillions of dollars in value.
In another statement, Jamie Dimon, who heads J P Morgan, the biggest bank in the United States, predicted a ‘serious’ market correction. Heargued that the US has become a less reliable partner for other countries in the world.
In the latest Financial Stability Report, the International Monetary Fund warned that there was a significant increase in the chance of a ‘disorderly’ market correction.
Despite all those warnings, money found way into markets like Hong Kong, China, Korea and Japan. US markets continue to scale new peaks and trade at record highs. Most pundits have highlighted the risk of inflation in rich countries.
On the other side, macro-economic fundamentals in India have never been so strong. The country’s finances are relatively more stable than those of most other middle-income countries. The IMF has expressed optimism by raising India’s growth forecast for the year 2025-26. Corporate profitability is improving with every quarter. Businesses have strong balance sheets, and companies in the IT services sector are offering buybacks and bonus shares to investors. Despite the positive sentiment, foreign portfolio investors remain cautious. They pulled out close to $15bn from Indian equities in 2024-25. In the current fiscal year, they have pulled out just under $3bn from Indian equities. Domestic investors continue to support Indian equities with monthly inflows staying strong.
What it means to you
It seems that India’s managers of fiscal and monetary policy have managed to tame inflation. It is your biggest enemy when it comes to your money. If inflation remains under control, interest rates will stay stable or decrease. That allows businesses to borrow more money and expand their operation. However, there are a few signs that the private sector borrowing is surging for expansion. The capital expenditure needed to boost domestic consumption is led mainly by the government. Salaries in urban areas continue to languish, and there is no surge in urban consumption.
Anand Rathi Wealth is a listed company in wealth management. In the recent conference call, they told analysts that the probability of a catastrophic fall in the Indian equity markets is low, as technical market indicators (they listed several, like margin funding book size and short-sell positions) do not show signs of a sell-off. With close to Rs 30,000 crore flowing into monthly systematic investment plans, investors do not expect share prices to fall sharply in India even if there is a sell-off elsewhere. However, as an individual, there is no harm in erring on the side of caution. As a salaried person, you should continue with your systematic investments. The asset allocation can shift towards multi-asset funds rather than multi-cap funds. For those investing directly, you may want to increase cash holdings in your portfolio. Any significant market reaction could present an opportunity to buy low. If you are new to the world of investing, you may want to spend time on learning and reading up.
