India has been struggling to curb inflation for more than 4 year now and until lately it appeared that inflation may not go away easily. Even now inflation has just started cooling off but whether it settles lower is something that remains to be seen. On the other hand, some major developed economies of the world have been trying to push the inflation up in their respective countries. Develop countries also face a problem of stagnated growth and fragile recovery. To fight deflation or to raise inflation and revive growth, develop countries have adopted expansive monetary policies keeping interest rates near zeros. Going one more step ahead, they also have pumped in huge money in their respective economies. Unfortunately that money flows all over the globe and gives undesirable results.

Recently, monetary authorities of two big nations, the U.S. and Japan have taken important policy decisions which may have impact not only on their own economies but also on emerging market economies including that of India’s. Federal Reserve (in U.S.) discontinued its bond buying programme withdrawing monetary stimulus. In the nick of time Bank of Japan (BoJ) announced a launch of a monetary stimulus package worth Yen 80 trillion (around USD 709 billion), which exceeds by nearly Yen 10 trillion hinted earlier. With this move, BoJ surprised investors. As results, global equity markets went up on the announcement. Indian equity markets too reached to their life time highs and Foreign Institutional Investors (FIIs) which appeared to be booking profits in India over past one month, pumped in fresh capital.

Are FIIs coming back in a big way?

Data from September 30, 2014 to October 31, 2014 has been considered
(Source: ACE MF, PersonalFN Research)

How India is affected by the Japanese stimulus?
To understand how India is affected we first need to know what the Japanese stimulus means for global currencies and commodities. The Japanese Yen fell sharply against U.S. dollar reaching its 7-year low. Strong dollar means weak commodities since most of commodities are dollar denominated. Strong dollar resulted in unprecedented fall in gold and silver prices. Moreover, the money that will be pumped into Japanese system as stimulus may also flow in equities, in and outside Japan. The spike in FII flows in Indian markets over last few trading session of October 2014 hint that FIIs may come back to Indian markets in a big way after taking a brief pause.

Would you benefit as an investor?
PersonalFN strongly recommends that investors shouldn’t place bets on any asset class based on events such as stimulus packages announced in other countries. Sure, your investments are affected. But it could prove a futile exercise to take any investment decision depending on such developments. On back of massive stimulus programme announced by BoJ, all asset classes are reflecting some impact. PersonalFN is of the view that, you should pay close attention to your asset allocation and rebalance only if any asset class has come down or has gone up above pre-determined limits.

At this juncture if you equity allocation breached the upper limit of your allocation pattern, you may take advantage of the current stock market rally and cut excess allocation. Similarly, in case you allocated lesser resources to gold, you may take opportunity in lower gold prices and buy some precious metals. As the commodity prices are expected to soften until U.S. dollar remains strong, India’s current account position may improve. Lesser inflation led mainly by lower crude oil prices may help ease inflationary pressures. In case you kept away from debt funds fearing losses; you might take a call now, depending on your time horizon. In other words, PersonalFN is apathetic to market sentiments and market reactions. Rather, it encourages its investors to stay focus on their long term goals. PersonalFN is of the view that, you may benefit from ups and down in asset prices if you don’t try to time them but allocate resources intelligently.

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