The markets have reacted sharply to Britain’s vote of exiting the European Union. As the uncertainty on how and when the exit will be planned and its impact on UK as well as other nations slowly unfold, markets are likely to remain volatile. If you are looking for averaging opportunities, this is the time to buy.
As we pen this note, the Sensex is down over 700 points or 2.75% and other Asian markets have fallen more.
This fall is triggered by foreign institutional investors (FIIs) selling, reacting to the news of Brexit (Britain’s exit of EU). Much of the fall is in large bellwether stocks. Besides a market fall, we expect the rupee to be volatile and yields of bonds to go up.
What to expect
While India’s trade ties with Britain has been sound and our initial thought is that our bi-lateral trade agreements could actually strengthen, what causes uncertainty at this point is the impact on Great Britain. Any slowdown in the economy can hurt some of the trade (especially exports) that India does – in IT, pharma, auto and so on. Indian companies also have FDI exposure in UK and any slowdown can also impact earnings growth for companies invested.
We will put out a more detailed note on India’s ties, sector exposures with United Kingdom and the impact it could have and also further update you as and when events unfold.
For now, nothing changes India’s fundamentals. We have sound tail winds in the form of lower interest rates and inflation, improving production numbers and comfortable deficit. As we see FII money churn across countries, it is likely that they may settle quite a bit in India, given that India has stronger fundamentals at this point compared with all emerging nations.
What to do
We would urge you to use the fall today to average your mutual fund investments. You could invest a chunk of your money today and further add to it in 5-6 phases over the next several weeks as market remain volatile. If you are running SIPs, do not make the mistake of stopping them.
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Appreciate the advice. I am following Buffet’s words, “‘Be Fearful When Others Are Greedy and Greedy When Others Are Fearful.”
Would now also be a good time for picking up any international funds in small amounts for diversification? Specifically, European holdings like Franklin Feeder European Growth? Maybe SIP in small amounts for a year or two and wait for recovery in 5-10 years? Thoughts? Thank you!
I would do that if there are no good opportunities elsewhere ‘now’. When there are better opportunities present now, why go behind uncertainty especially when those markets have never beaten India over the long term? Vidya
Awesome, thanks for that perspective. My thinking was plainly around gaming the volatility in the EU over the next several months. Not to mention diversification and any gains from long term EUR/GBP appreciation.
Thanks again, your advice and insight are invaluable! 🙂
Would now also be a good time for picking up any international funds in small amounts for diversification? Specifically, European holdings like Franklin Feeder European Growth? Maybe SIP in small amounts for a year or two and wait for recovery in 5-10 years? Thoughts? Thank you!
I would do that if there are no good opportunities elsewhere ‘now’. When there are better opportunities present now, why go behind uncertainty especially when those markets have never beaten India over the long term? Vidya
Awesome, thanks for that perspective. My thinking was plainly around gaming the volatility in the EU over the next several months. Not to mention diversification and any gains from long term EUR/GBP appreciation.
Thanks again, your advice and insight are invaluable! 🙂
Appreciate the advice. I am following Buffet’s words, “‘Be Fearful When Others Are Greedy and Greedy When Others Are Fearful.”