Reference Auto

The stock markets have entered a bearish phase again with foreign institutional investors or FIIs pulling out money. This, coupled with fear of a slowdown in corporate earnings in the October-December quarter and ban on Anil Ambani by market regulator Securities and Exchange Board or Sebi, could have a debilitating effect on the markets in the medium term.

On Friday itself, the BSE Sensex tanked 322 points to close below the 19,000-mark at 18,860. During the week, the Sensex lost a whopping 830 points.

This is the highest weekly loss in eight months and the benchmark index of the BSE fell below 19,000 for the first time in four months. During the year, the Sensex shed 1,650 points or 8%. The effect of the Ambani decision is yet to show as it came to light after the bourses closed on Friday.

Among the Sensex stocks on Friday, Tata Motors shed 4.6% to close at Rs 1,179, while HDFC Bank fell 4.2% to Rs 2,053 and HDFC was down 4% to Rs 642. Among the 30 Sensex scrips, 25 ended with losses, while five gained. On Friday, real estate, banks, metals and auto stocks were the worst performers.

FIIs have sucked out close to $1 billion from the country’s market. The surging inflation along with the government’s inability to tackle it are prompting foreign as well as domestic financial institutions to shy away from the bourses. The Reserve Bank of India could raise interest rates to tame inflation in its policy review during the end of this month.

In 2011, investors have lost over Rs 5 lakh crore in the bourses with BSE’s market capitalisation standing at Rs 68 lakh crore.

Exchange traded funds (ETFs) in gold have added the much need lustre to investments. India has always been at the forefront of gold buying in the physical form, which is mainly for ornamental purposes rather than an investment.

As per data, Indian households own 15,000 tonnes of gold in physical form, the highest in the world. With the price of the yellow metal soaring to unprecedented levels, investors are seeing it as a lucrative investment now.

Gold ETFs (where the yellow metal is held in paper rather than in the physical form) are traded on the stock markets. They have risen 75% in December 2010 as investors picked up gold funds worth around 15 tonnes during the month.

Gold is the standard offering in weddings all across India and the relentless fad of Indian households to keep substantial quantities of the precious metal in physical form will result in an uptick in demand even in the long term.

Gold ETFs could turn out to be as lucrative as mutual funds. According to a market analyst, keeping the yellow metal in the form of ETFs for, say five years, could yield a compounded annual growth rate or CAGR of over 35 per cent (compare this to a bank fixed deposit which offers an average interest of 7-8 per cent annually).