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Thursday 9 June 2011

Why You Should Not Invest in Sector Funds?

The pink papers as well as business channels often paint some picture or another on various sectors - be it infrastructure, auto, oil & gas, FMCG, Pharma, etc. Various sector analysts along with some industry professionals too, do provide their views thus making the story look more appealing - both in a positive way as well as in a negative way. And since these media reports are often read by many, the sector indices display a "see-saw" movement.

Let us take you back in time. In the year 2007 when the equity markets were buzzing the real estate markets too went crazy taking prices beyond the reach of the common man. The pink papers made the whole infrastructure theme look bold by flashing headlines like - "Infrastructure sector will be a key contributor to our economic growth". But as news of U.S. sub-prime mortgage crisis emerged in January 2008, ripples were sent to across various developed and emerging nations including India, and the much boasted about infrastructure theme / sector lost its steam. Several infrastructure companies which had leveraged their balance sheets suffered in pain, since sales dropped and stiff interest cost on borrowed funds started biting into their profits. Taking into account these economic equations, stocks in the infrastructure theme / sector too were battered, and when Lehman Brothers (once one of world's largest bank) went bust (in September 2008) the severity escalated. Later due to capital goods, Lehman Brothers news, even the Indian financial system - banking stocks were negatively impacted. But fortunately since our central bank - the Reserve Bank of India was prudent enough in not to adopt exuberant policy stance, the impact of global economic negativity was better controlled...(Read More)

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