And so the markets have 'recovered', apparently in response to the finance minister giving a statement. Perhaps all the markets needed was a general reassurance, rather like accident victims being visited by a Chief Minister. That must be it because everything he said actually re-emphasised what yesterday's SEBI statement said.
Clearly, the official point of view is that although FII money is welcome, the way money has streamed in for the last few weeks is alarming and the government will do everything to stop this. Anonymous, momentum-riding capital is OK as long as stays within certain limits that the regulator will set. Most importantly, SEBI's actions and the FM's statements have underlined the fact that the government is not going to get scared by the prospect of any short-term market crashes. There are details like how what exactly will happen to promissory notes that are 'excess' under the new rules but clearly, this is one hiccup that is very much for the good of the market.
This is actually great news. The fact is that every sensible commentator was alarmed by the way the market rose over the last few days. If any regulatory mess has to be cleaned up and any bubbles to be pricked, then now is the time to do it, when the basic shape of the market is healthy and most investors are sitting on fat piles of cash they've earned. At this point, a five or ten per cent drop is a reasonable price to pay if it makes the markets less welcome to the kind of money that isn't here for any fundamental reasons.
For the individual and retail investor, today's events do not mean any change. The basics remain very much intact. Investors should not either withdraw or invest large sums of money at one go. If you have money to invest for the long-term, do so gradually through a SIP or similar mechanism. As always, it would be a poor idea to put short-term money into equities.
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