Investors pinning their hopes on an early recovery should peg their hopes on fundamentals, instead of going by technicals
The markets now cheer every little piece of news, desperate to get moving, and weighed down by the expectations of speculators who have lost money since January. If a booming market requires looking at technical indicators for any weakness, a market reviving from a crash has to look at fundamentals. There is little merit in looking at technical indicators and cheering a recovery, because a technical recovery will be tested at all the previous support levels, which will now become the new resistance levels.
News coming in from the US on the breadth and depth of the credit crisis in their markets is not great. While most brace for some of the institutions to fall, several small ones have already fallen. If the revival in the US is going to be on the back of exports spurred on by a weaker dollar, despite a sluggish consumption level, we have a different set of factors to deal with. Most of the export-oriented emerging markets are not ready for a weak dollar, and the currency-market implications of this revival model for the US have to play out. Investors building optimism need to consider fundamentals, before beginning to buy.

NRIs need handholding
NRIs investing in the Indian markets have moved steadily away, in the boom years of the markets, from bank deposits to stocks and mutual funds. Some of the slow starters have been daunted by the paperwork and tax procedures. They are now also wary after the correction in the markets.
Market corrections provide the best opportunity to offer value-added services that clients always look for. Many of them need advice, not on market timing and which stocks to buy, but in terms of streamlining the papers and accounts that they have. The most frequently asked questions from NRIs are about procedures and paperwork. Let me attempt a sampler of clarifications. NRIs need no prior approval to invest in mutual funds. Their investments in stocks will have to be under the RBI-approved Portfolio Investment Scheme (PIS). PIS accounts can be opened with the help of banks, and have to be funded by a non-resident bank account. Demat account under PIS has to be distinct from demat account held when the NRI was a resident Indian. All demat accounts need PAN card verification.
NRIs are keen to invest in India, and transact on their accounts online. They value advice that is helpful and specific to their problems. To advisors seeing a slowdown in new business, servicing clients builds goodwill that will pay rich dividends when the markets move up again.

Time to dilute ownership?
The RBI?s latest Report on Currency and Finance points out that public sector banks would need Rs 3,70,000 crore as capital infusion over the next five years. The government has remained unwilling to dilute its stake below 51 per cent. This has meant that the much-needed modernisation plans are moving slowly.
But more importantly, PSU banks compete with private and foreign banks that have lower cost of funds, while conceding a higher net interest margin to them, from the higher cost of lending that is benchmarked to PSU rates.
It is obvious that PSU banks will do much better from merging or being taken over, provided such strategic actions can bring in additional equity. RBI?s highlighting of PSU banks? situation creates indirect pressure on the government to review its stance on ownership and management. One would think that 2009 would be decisive, both for the review of the ceiling on private holdings, and for more far-reaching reforms. There may be value in PSU bank stocks that seem to hit more by interest-rate expectations and the slowdown in credit offtake.

High-risk gambit
Anand wrote in to ask whether short-term FMPs can hold longer-term bonds. Should the instrument not match the tenure of the FMP? Given the speed at which funds are launching FMPs, this could be the new game. Hold a longer-term paper and sell it to the next FMP in line. In a hot market, there will be newer ways of beating the competitor with yield. There is interest-rate risk in this strategy, which can hurt an investor depending on market value of the instrument at the time of redemption of the FMP.
The writer is managing director,Centre for Investment Education and Learning