Reference Auto

The Sensex, the benchmark index of the Bombay Stock Exchange (BSE), has hit a standstill in the last few years, hovering around 16,000-18,000 points and with fear of another impending slowdown, the stock markets could plunge to the lows of the 2008 slowdown and the Sensex may again fall below the 10,000-points mark.

Fitch, a globally-reputed rating agency, has downgraded India from stable to negative and said that unless the country speeded up on economic reforms, the prospects in the days ahead were bleak.

So, what does a Fitch rating do to a country’s reputation? It makes it difficult for a country to procure loan from the global market if the rating is negative.

Also, the Reserve Bank, in its quarterly review, left key rates unchanged, which indicate interest charged by banks were unlikely to go up in the near term.

On Monday, the Sensex ended 244 points lower at 16,706 points, with sector sensitive to interest rate changes such as banking and real estate stocks plunging the most.

The day’s losses left stock investors poorer by Rs 78,000 crore with BSE's market capitalization standing at Rs 58.8 lakh crore.

With the rupee also plummeting to its lowest value (touching almost Rs 55 to a dollar), it is a worrying signal as foreign products would become dearer.

Marketmen are of the opinion that the Union government isn’t doing enough to give a fillip to the stock market as well as the economy. The want the government to put reforms (especially FDI in retail) in the fast lane.

Despite all this gloom, there could be light at the end of the tunnel. In case, the Sensex goes below the 10,000-points mark, there will apparently be gloom everywhere and people will shun stocks and lucrative mutual funds.

In fact, they should just be doing the opposite: picking up stocks, preferably of reputed large-cap companies (after a thorough analysis though) and mutual funds rated five star (over a five-year period at least, which indicates consistency of returns in the long term) by Value Research.

One advantage of course is that these stocks and mutual funds could double in value once there is another boom, which may take a year or two.

There is also another advantage. Unlike fixed deposits of banks or even post office instruments like NSCs, among others, (which offer assured returns and therefore attract tax), income from a normal mutual fund after a year or from a tax-saving fund (better known as ELSS) after three years is entirely tax free as they offer uncertain returns.

So, investing in mutual funds or stocks during a slowdown is the most judicious thing to do.