Peter Drucker one of the most respected and defiantly one of the most profound management thinkers, management gurus of all times said that the world is flat. The interconnectivity of the organizations be it a MNC, government affairs, money in general has made the thought of Peter Drucker come true. Why this interconnectivity is good or bad is a debatable point where people have their own stance. Was the relations amongst the nations prior to this interconnectivity more fragile or it has become more fragile now.
What are the pros and cons of free markets is being debated every now and then. Be it the Asian bond crises of 1997 or the US economic crisis 2008 or to a greater extent what the world is dealing with right now known as the Euro crisis.
To start with money has no colour, it chases return, making money by using money. It may be good and bad depending upon the timing. With the advent of the free markets money got the mobility, from developed nations to the developing nations. Take for example the Malaysia , Taiwan who liberalized there way back and saw multinationals flooding in and bringing along huge investments. Along with that multinational financial institutions pour in the money into the financial markets, taking sentiments to new highs.
Now today’s scenario is that the BRICS Brazil, Russia, India, China, South Africa are the emerging engine to the world economy, they the future hope to the world economy. Both in terms of market as for consumption and market as for labour force and investments. As aforesaid money has no colour and it chases returns, things can get real messy.
The notable point is that what happened in between the period 2008-09, did Indian market became suddenly so unattractive that they flushed down all the money. All the FII otherwise the foreign institutional investors generally multinational banks who were at the verge of extinction pulled out all their investments from everywhere they had invested in to safe guard their existence. Once again when the Federal Reserve introduced the QE the banks regained confidence. With lots of money on their balance sheets they again turned towards the emerging nations to make some profitable investments. This can be seen in the period 2010 and 2011. Although after the first quarter of the 2011 the Indian market started to lose sheen because of the inflation which in turn lead the RBI to raise the interest rates which in turn decreased the corporate earnings.
So what can we expect here on is that the RBI has signaled that it will not raise the key interest rates any more and is thinking of reducing the same. This will revive the earnings of the company and then the market can see fund coming again.
The thing that can be observed is that the p/e of the market is cyclic and it can this year provide the opportunity to long term and medium term investors to make some investments.
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